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What if Grexit Breathes New Life into Greece's Economy?

© REUTERS / Wolfgang RattayGrexit
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According to some economists, there is a possibility that a Grexit would not actually sink Greece's economy but instead facilitate its growth prompting fears that Athens' example would encourage other EU member states to leave the Eurozone.

Citing leading economists from Oxford Economics Ltd. and Citigroup Inc., London-based journalist and expert in economics Simon Kennedy is calling into question the suggestion that quitting the euro would ultimately drag the country into the abyss of an economic catastrophe.

"Economists at Oxford Economics Ltd. and Citigroup Inc. this week gave voice to the question of what would happen if Greece dusted itself down within a couple of years and rode a falling currency back to economic growth. That would challenge the theory that leaving the euro was economic suicide," the journalist underscored.

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According to Mr. Kennedy, if Greece overcomes its ongoing instability it will prompt other EU-members which are suffering from the Brussels-imposed austerity measures to consider devaluation and default "more appealing than life within the euro." So far, Athens' "contagious" example would deal a heavy blow to the currency bloc's sustainability, ever bigger than if Greece stayed in the Eurozone, the journalist noted.

Remarkably, Joseph E. Gagnon, senior fellow of the Washington-based Peterson Institute for International Economics, has even gone so far as to suggest that a Grexit, "if handled properly" may facilitate the country's economic growth. "[T]he Greek economy could begin to grow within six months and accelerate strongly over the next two or three years," the scholar underscored.

"The real depreciation of the drachma would cause an immediate boost to spending inside Greece that would grow over time. It would make Greece more attractive to international tourists. It would boost the domestic buying power of employees and owners of the large Greek merchant marine who earn their money overseas. It would increase the competitiveness of Greek farmers and oil refiners and others that produce goods for export. By making imports more expensive, it would boost the competitiveness of Greek firms that make competing products and services," Mr. Gagnon elaborated.

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There is a serious "threat" that Greece's potential economic rebound would encourage "non-mainstream forces" in other countries, namely Spain's anti-austerity Podemos party, Mr. Kennedy pointed out citing the economists from Citigroup.

"From an economic perspective, one of the major contagion threats from a Greek exit would be if Greece left and its economy quickly started to grow strongly. In such a scenario, further fragmentation of the euro zone may be more likely than not," noted Oxford Economics' Senior Eurozone economist Ben May, as quoted by the journalist.

Experts suggest that there are many other southern Eurozone economies which would most likely follow Greece's example, warning that such a domino effect could be dramatic for the EU.

According to Oxford Economics' experts the "Solomon's decision" would be to provide Athens with "enough" assistance to evade the disaster, but "not enough" to make an exit from the Eurozone seem appealing to other EU's member-states.  

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