Does Greece hold the fate of the Euro in its hands?

In a few weeks Greece will hold elections that could very well determine whether it remains in the Euro zone or not. If Greece leaves, some analysts believe it will result in other nations following suit. Others fear it will send Europe back into recession. In fact, there are any number of possible scenarios which could occur.

In an extensive paper, Brookings Institution fellow Douglas Elliott argues that Greece’s departure from the Euro zone will not necessarily result in the death of the EU. He provides a thorough review of the short- and long-term consequences.

The range of possibilities that could follow a Greek exit are numerous. Some are quite dire.

“In the extreme scenario, there would be a series of exits, leaving only the stronger countries still in the euro. Those that pulled out would experience deep recessions, even depressions, as they suffered the transition costs of exit and dealt with the implosion of their banking sectors and much of their business community. They would also wrestle with high inflation,” Elliott posits.

However, he adds that there are options and “many ways in which the euro area might avoid getting to that point. This includes the likely possibility that even Greece will pull back before getting to the point where it would exit the euro, especially as the large majority of the public wants to avoid leaving the euro area.”

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