Recently there has been a lot of discussion on countries that may or should leave the euro. In a later post I will clarify my position further, but for now it is the following: It would be disastrous not only for the country but also for the Eurozone.
In this post however, I would like to describe what I think would happen if your country leaves the Euro. How to see the warning signs and what you should do when you see them. The technical scenario that I will describe has been partially borrowed from this site, which also describes other countries leaving a monetary zone.
First, the warning signs. in the case of Greece they´re already there: capital flight, unrest in the streets, default of the government en problems with banks. But it is mainly that a lot of people that are saying Greece will leave the Euro. The only thing that is missing is a firm official denial from the government (which would mean that they have given the idea some thought). In the case of Portugal the obvious sign is Greece leaving the Euro.
So what would happen if a country, for arguments sake Greece, would leave the Euro? The first thing is that it would happen overnight in a weekend without any official warning. Banks will close for a number of days to complete the transfer. This is to prevent massive capital flight.
All euros will be marked in the following way: for the notes they would get a stamp without which the note will lose its value withing Greece (that means that the banks will not accept unmarked notes). For other euros like those on banks, they will be transferred to the currency under which laws they operate. So if you have a Greek account your euros would be transferred. The same will hold for contracts, loans and bonds under Greek law. To make this all work, strict capital controls will be imposed: nobody will be allowed to transport money across the border. That means that you can´t travel with notes on your pocket and that you probably can´t transfer money.
Now for the more personal consequences. If this all happens it is certain that the new coin will drastically be devalued. That means that all goods from abroad (things like medicines, oil, other food and factory goods) will be substantially more expensive. So if you need medicines (especially expensive ones) it may be prudent to keep a reserve in case that you can´t afford or won´t be able to buy them.
A lot of things will depend on how the owners from stores and other producers will accept the new coin. This in turn is very much dependent on the actual depreciation of the coin. If it depreciates little then life for Greeks will be more expensive but livable. If the depreciation is large then bad things will happen.
In the later case a following scenario could occur: banks will remain closed as people frantically try to get to their savings, while they are still worth something. That in turn will lead to the shutting down of the banking system of the whole country. A disaster since the majority of payments and wages is done using a bank.
Because of that shop owners will essentially not accept the new coin and all virtually monetary traffic breaks down (this happened in Argentina, where gold parts of necklaces became currency in some cases). Whatever the new currency will be a lot of people will not have enough of it to subsist. Therefore you can expect the looting of supermarkets and other stores if this situation lasts for more than a couple of days.
What should normal people do? If there are strong capital controls, getting your money from the bank early will only help a little (on a black market people will still accept the unmarked euros because they can smuggle them out). Also putting your money on a foreign account may not work if you're not allowed to import euros. More important is to have some reserves of essential food, water and medicine. If looting actually takes place, the streets will become more unsafe so the less you have to go outside the better. If you have friends or a job opportunity abroad this might be the time to move out.
When the chaos resides, your old job will most likely no longer be there. So it is time to rethink your career. A good example was given in this Dutch documentary of an Argentinian shoemaker who started a black market which now has a turnover of millions of euros per day. Also since many assets from companies (equipment, money, bonds etc.) and people (houses, cars) will be cheap, it may be the time to invest and hope for recovery.
I don't think that in any European country this chaos will last long or will really occur at the first place. Therefore panicking and making rash decisions is unwarranted. What I would recommend though is to have some reserves so that if bad things happen you can ride it out.
No comments:
Post a Comment