Despite the distracting political drama over the UK’s outlier rejection at last week’s European Union agreement on fiscal and budgetary coordination, it’s now become clear that main objective of the collective effort–to ensure the survival of the euro, and more broadly bolster Europe’s economic outlook–has not been attained, and that the currency has won a short-term respite at best. So with the monetary chaos and European debt crisis still looming large and posing troubling questions, it would be unwise to ignore hypotheses now arising about what might happen if certain countries dropped out of the euro zone—or if the entire currency imploded. While that is still very much “what if” theorizing at this point, such a potential crisis is worth examining, if only to identify signs of what may await if things continue to deteriorate.
Tuesday’s New York Times continues its excellent coverage of Europe’s debt crisis by turning to Greece–the most weakened and vulnerable economy on the continent. It raises questions about the potential consequences of a return to the drachma. The picture isn’t pretty—involving bank runs, freezes on moving capital abroad, surging unemployment, rising prices and falling currency values, government default, isolation from international creditors and markets, and the sort of social and economic trauma and ruin associated with the Great Depression—or worse. “As the country descends into chaos,” the Times imagines, “the military seizes control of the government.”Read More
