Withdrawal of Greece from the European Monetary Union: Historical experience, macroeconomic consequences and organisational implementation

Is the withdrawal of Greece from the monetary union, connected with an external depreciation of the new currency, a viable alternative to the current strategy of internal devaluation, coupled with public capital-transfer? In this study, the Ifo Institute compares the macroeconomic implications of three possible future scenarios. In the first scenario, Greece leaves the euro and introduces a new Greek drachma as the official currency. In the second scenario, Greece remains in the monetary union and manages to achieve the necessary internal devaluation. The third scenario assumes that Greece remains in the monetary union but that the necessary internal devaluation fails and is offset by public subsidies from the EU. Whereas the last scenario is a projection of the current situation, the study investigates for the first two scenarios, using historical examples, how important economic variables have developed after major devaluations. In addition, possible negative balance-sheet effects for Greece in these two scenarios are analysed. Finally, the technical implementation of the withdrawal of Greece from the eurozone is discussed.