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Greece will remain in the euro for now

Odendahl, C. & Tilford, S. (2015) “Greece will remain in the euro for now“, Centre for European Reform, 16 Ιανουαρίου.


Greece will hold a snap election on January 25th, after the country’s parliament failed to elect a new president with the necessary majority. Syriza, a left-wing party (or rather a coalition of parties) led by Alexis Tsipras, currently leads the polls. Given Syriza’s outspoken criticism of Greek economic and social policies over the last four years, and its sometimes confrontational statements vis-à-vis the eurozone, some fear that Greece might quit the single currency. This prompts several questions: is it in Greece’s interest to leave? What would be the consequences for the Greek economy and that of the eurozone? And is the rest of the eurozone willing to let Greece go? What follows is an attempt to answer these questions, and to predict what will happen, given what we currently know about the economics and politics of Greece and the eurozone. – See more at:

Are there any benefits of Grexit for Greece?

Greece would regain autonomy over its monetary policy – the most effective tool for maintaining demand in an economy. Central banks influence the expectations of consumers and investors. Currently, firms in Greece expect low demand and deflation, and consumers low income growth. An independent Greek central bank, if it were able to control inflation, could raise those expectations, leading consumers and investors to spend and invest. The Bank of Greece would also be in a position to ensure that real interest rates (that is, interest rates after accounting for inflation) were low enough to stimulate investment and consumption.

What is more, the likely sharp fall in the value of the drachma against the euro would reverse the loss of trade competitiveness suffered by Greece since it adopted the single currency. Exports would no doubt be slow to recover given the collapse in investment in the country’s tradable sector in recent years. And many structural problems that hold investment back are yet to be tackled. But exports would eventually rise as investment recovered. One sector that would be sure to benefit would be the tourism industry. – See more at:


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