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Dropping the euro would leave Greece with a much cheaper currency, its own drachma. That would juice Greece's economy by making Greek products less expensive around the world. This would give Greek exporters a competitive edge. In the 1990s, Canada used a weak currency to expand exports and grow its way out of high government debts, says Simon Tilford, chief economist at the Centre for European Reform in London. As long as it's shackled to the euro, Greece lacks that option. Bernard Baumohl, chief global economist at the Economic Outlook Group, thinks economic and financial pressure will eventually drive Greece to drop the euro. And he thinks that would be for the best. "What is worse for Europe -- to have this matter linger on and on, with European citizens having to continue to bail out Greece and Portugal? Or to face the reality that these countries should not have joined the euro in the first place?" Baumohl asks. The cons: Exiting the euro would throw Greece's banking system into chaos. Lenders would panic over the prospect of being repaid not in euros but in drachmas of dubious value. Adopting a suddenly much weaker currency could also ignite Greek inflation because prices of imported goods would soar. International investors would be reluctant to lend to Greece's government, its companies or its banks. The freeze-up in credit could cause a depression, worse than what Greece is suffering now. Economists at UBS estimate that Greece's economy would shrink by up to 50 percent if it left the eurozone. The pain would also likely spread as European banks absorbed losses on their loans to Greece. The worst-case scenario: A disaster akin to what followed Lehman Brothers' collapse in September 2008. Banks grew too fearful to lend to each other. Credit froze worldwide. Some economists would like to see European governments produce a rescue package that pairs government cuts and reforms with economic aid designed to spur growth in Greece. "When you have over 20 percent unemployment, you need to do something," Papadimitriou says. He wants European countries to propose something like the U.S. aid plan that rescued an impoverished Europe after World War II. "You need something similar to the Marshall Plan," Papadimitriou says.
[Associated
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