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Public Debt Dynamics of Europe and the U.S. by Dimitris N. Chorafas

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6

Drachmageddon

Exit from Euroland and Bankruptcy? Or Bankruptcy Within Euroland?

Chiefs of state, economists, and financial analysts have foreseen that either of two options will happen: Greece quits Euroland, reintroduces the drachma, probably defaults, prunes its balance sheets and, in an unlikely but not impossible move, rejoins Euroland. Or, it defaults within Euroland, obliging the other member states to ring-fence its economy to avoid contagion (Though contagion may also come from Spain and Italy, neither of them being in an economic situation much better than Greece.)

Nobody can calculate the cost of the default option. Part of the cost of going back to the drachma will be the forced conversion of bank deposits, and strict capital controls. ...

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