Case Study: Leaving The Euro

Thus, at this point, there are two possible scenarios: leaving the Euro but remaining in the Target 2 payment system or leaving the Euro and Target 2.
In the first case, Greece could decide to continue to participate in Target 2, paying immediately back the debt to the Eurosystem; and this is a very unlikely situation.
Alternatively, one possible arrangement may be for Greece to have a derogation. Moreover, a periodical recovery plan should be set. The interest rate paid on the debt positions is equal to the rate of MROs(marginal refinancing operations),which is currently equal to 0.05%; therefore Greece’s annual cost would be small, around Euros 50 million per year.
The total debt, however, is equal to about 60% of Greek GDP and, thus, only
Moreover, if quantitative limits were set, there would be a limit on the ability of national central banks to refinance its banking system in case of capital outflows and guidance would be given to the market on the level beyond which a country would no longer be able to refinance its banking system.
In this situation, Grexit would affect the Euro area’s payment systems, leading to the raise of a conflict of interest between the country, subject to capital flight and whose aim it would be to ensure sufficient resources to refinance its banking system, and all other Member States, whose aim it would be to limit the cost of a possible default of that country.
Finally, in the light of the obvious negative consequences that Grexit could have on European economies and markets, why are some European governance’s members in favor of Greece’s withdrawing from the EMU? Could this process be accomplished in a controlled and orderly fashion, limiting the negative systemic effects?
Many ponder the desirability of a Grexit. There is a heterogeneous group, including the right-wing German party, Alternative for Deutschland, and the left-wing of Syriza, who agree that a Grexit is
In the document, the Minister suggested that a temporary Grexit would be in Greece’s own interest.
Indeed, according to a confidential IMF study, Greece would need a huge debt relief because its economy has deteriorated so severely due to the “bank holiday” and the imposition of the capital controls.
Thus, unless European creditors are willing to accept extension of the grace period for serving Greece’s entire debt stock to them plus future loans, the alternatives would be annual transfers to Greek budget or “deep upfront haircuts”.
However, even if the international lenders agree that Greece needs a debt writedown , such a step is illegal within the Eurozone under the EU law.
Therefore, such a haircut should take place outside the European Monetary