ATHENS, Greece – As Greece creaks under its untenable debt and a shrinking economy, the possibility that it could stop using the euro is becoming increasingly likely. The effects of such a move would be as quick as they would be brutal for ordinary Greeks, who would essentially take a 50-percent pay cut just as prices soar.
Here's a look at what else could happen:
THE RETURN OF THE DRACHMA
No other country has ever left the 17-country eurozone before and there are no procedures in the EU's vast rulebook that would push any country out. But one fear is that the Greeks could decide to vote in an anti-austerity government on June 17 that may then decide to renege on the terms of the multi-billion-euro bailout which has been keeping the country afloat. Greece could be then forced into a messy exit from the euro bloc. It would then have no choice but to start printing its own currency — the drachma — to pay its way.
According to the Greek think tank Foundation for Economic and Industrial Research (IOBE), such a move would hit the Greek people hard — and quickly. The new drachma would lose half or more of its value relative to the euro. This would drive up inflation and sap the purchasing power of the average Greek. At the same time, the country's economic output would drop, putting more people out of work where one in five is already unemployed. The prices of imported goods would skyrocket, putting them out of reach for many.
THE DASH FOR CASH
The prospect of Greece leaving the euro and dealing with a devalued drachma has already prompted many people to start withdrawing their euros out of the country's banks.
"Fear has gripped many who are withdrawing their money," said IOBE head of research Aggelos Tsakanikas.
Although the latest bank deposit figures aren't yet available, Greek President Karolos Papoulias last week said about €700 million ($898 million) in deposits was taken out of banks the week after the May 6 election. What's more, according to central bank data, Greek banks have been hemorrhaging money for almost three years now — from a high of €237.8 billion ($302.5 billion) worth of deposits in Sept. 2009 down to €165.3 billion ($210.3 billion) in March this year.
A victory for anti-bailout lawmakers in the June 17 election would likely trigger an even bigger bank run, said Dimitris Mardas, associate professor of economics at the University of Thessaloniki. Greek authorities, Mardas predicts, would respond by imposing controls on the movement of money for as long as it takes for the panic to subside.
WHAT ABOUT HOMES AND SAVINGS?
As the new drachma quickly loses its value against other currencies, ordinary Greeks' savings and pensions will shrink just as rapidly. Analyst Vangelis Agapitos estimates that inflation under the new drachma would quickly reach 40 to 50 percent to catch up with the fall in the new currency's value. This would make everything much more expensive.
"People are going to need five times the amount of money they would have needed to purchase something," Agapitos said.
To stop the falling value of the drachma, interest rates would have to be increased to as high as 30 to 40 percent, according to Agapitos. People will then be unable to pay off their loans and mortgages and the country's banks would have to be nationalized to stop them from going under, he predicts.
FEW BENEFITS FOR BUSINESS
Some Greeks believe quitting the euro would boost the country's economy as a devalued drachma would make Greek exports cheaper.
But Constantine Michalos, president of the Athens Chamber of Commerce and Industry, says Greece doesn't have a strong enough export-oriented economy to take advantage of a devalued currency. The country currently imports twice as much as it exports.
"Without any real heavy industry, the Greek economy can't exploit this advantage," Michalos said. "Our main industry is tourism, but in a chaotic situation, which tourist would choose to come to Greece right after the country goes back to the drachma?"
To get its international bailouts, Greece had to embark on a series of economic and market reforms such as reducing a bloated public sector and cutting red tape. Agapitos warns that if Greece dumps the euro, the incentive to carry out these reforms would evaporate, hurting Greece's competitiveness.
GETTING IT ON THE BLACK MARKET
A drachma that is dwindling in value means that even basic, foreign-produced goods such as medicines or fuel will cost much more. Almost inevitably, a thriving black market would emerge, taking more steam out of the economy just as bank loans become much more difficult to pay off.
Vangelis, a 58-year-old former customs official who didn't want to give his full name, worried that going back to the drachma would return Greece to the abject poverty of 1940s when it was under Nazi occupation.
"We'll be paying half our salary for a can of olive oil ... Greeks can't be thinking about returning to the drachma. It would be a catastrophe, a catastrophe," Vangelis said.
TURNING TO A LIFE OF CRIME?
With all the pain a drachma-based economy would induce, IOBE head of research Aggelos Tsakanikas foresees an increase in crime as people struggle to pay bills. "We won't see tanks in the streets and violence, we won't see people starving in the streets, but crime could very well rise," he said.
Others reject the apocalyptic scenarios altogether, saying Greeks will fall back on their resourcefulness to overcome hard times and lend a hand to those less well off.
"The way things are now, it can't get any worse," says Athens resident Tasos Schinas, 37. "Sure, the transition to the drachma will be difficult (but) average people will find a way to survive, many will probably go back to the village and start growing produce ... We just won't go back to the lifestyle we've led all this time."
Agapitos, the analyst, thinks that attitude is too cavalier.
"Desperate people do desperate things, but I can't predict what will happen," he said. "There will be rage and people will want to vent it but it may not be done in a civilized way."