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They would need to impose capital controls. At least on a temporary basis they would have to suspend the application of the Schengen agreement. Their central bank would be shut off from the rest of the Eurosystem. It would be like the Argentinean corralito, on steroids. Greece would have to ration necessities and use a local currency while using the remaining Euro reserves held in Greece to purchase fuel and food in international markets. Comandeering local Euro reserves in this way might prove tricky as Euros would be hoarded by the population away from the State's reach.

While one can possibly argue that this wouldn't be worse for Greece than the current situation, just qualitatively different, if would be worse for the Greek elites and those who currently keep their jobs, and who directly or indirectly are the life support of the indignant gathered at Syntagma. It would also trigger an absolute financial disaster in Europe and the US. In Europe the Eurozone wouldn't last the week. The "peripheral countries" and maybe even France would be devastated by a run as money fled to Germany. Internationally active investment banks (Swiss, English and American) would have to be rescued from their CDS exposures.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sat Jun 18th, 2011 at 02:49:29 AM EST
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