Signals are getting stronger that Greece may leave EMU

Greece 'out of euro' if bail-out fails - Telegraph

There is more openness by Greeks now than ever to talk about the possibility of Greece leaving Euro. It may be another round of brinkmanship before the bailout discussions. But it could also be that the Greek officials have evaluated all the options and option to leave Euro may not be looking that bad at all compared to staying in the Euro.

They will have to default in any case. That being the case, instead being straight-jacketed by France & Germany, they better default big, leave the euro, have their own currency and start afresh. That way they can insulate their economy from Franco-German bulwark.

Some are saying the pain of leaving Euro will be much more. But staying in Euro is slow death. What happens if they stay ? and what happens if they leave ?

If they stay :
- Half their debt is forgiven
- But debt again adds up with bail out money
- Debt servicing costs will go down but will still remain high for the size of their economy
- Austerity will worsen recession and tax revenues will be down
- As a result deficits will stay where they are
- After a few years another default will be on the horizon

If they leave and default
- Their debt will be down to near zero.
- The new currency will be highly devalued vis-a-vis euro, making everything imported very costly and standard of life will take a big hit if one is dependent on imported goods.
- Exports & Tourism will get boost as Greece will be cheaper for anyone spending in Euros and Dollars.
- Their borrowing costs will be high for a couple of years till the new economy takes hold. Lenders will return once they see economy is getting better.

Which is better much pain and a cure forever or painful slow death ?

This is not to say the same is good for Ireland as well. Ireland is an export oriented economy and need to be much more careful before alienating countries which have lent us money. Whereas Greece is different. Though I believe it is bunkum to say staying in EMU is important for exports - look at China if you want proof. They are furthest from Euro as anyone can be but 90% of what I buy is made in China.