ATHENS — Homeward bound after the Trojan War, Odysseus of Greek myth had to pick a path through seas harboring a monster with six heads and a whirlpool that digested ships whole. Now, whether modern Greece exits the euro — potentially triggering global economic turmoil in the process — depends on the tough choices of Ivi Moreti and her 11 million countrymen.
Should the 60-year-old widow leave her nest egg of euros in a wobbly Greek bank and risk it being seized and converted into a devalued national currency? Or should she withdraw it all, joining what could become a panic forcing Greece out of the euro anyway by bringing down the financial system?
Who should she vote for June 17, when this nation mired in political chaos holds its second election in two months? A party willing to largely accept the crippling bailout conditions that have taken a bite out of her pension and run the economy into the ground? Or the rising rebels promising to buck the austerity imposed on Greece by its bigger neighbors, , a course that might cause total economic collapse?
For Greece — and Europe — her decisions have never mattered more. “We are just a small nation,” Moreti said, ruminating at a cafe overlooking the azure Saronic Gulf. “But if we go down, this is going to be bad for everyone.”
Nations have left currency unions before — Ireland, for instance, ditched its ties to the British pound on the road to 20th-century independence. But if Greece is forced to exit the euro, global markets could be thrust into uncharted economic territory for modern times.
The damage would start — though certainly not end — with the likes of Moreti’s wallet. Moreti, who like many here is terrified of losing the stability of the euro, would almost surely watch as a new Greek currency precipitously devalued, while interest rates and inflation soared. Prices of imported goods — such as her medication for diabetes and osteoporosis — would surge. As Greece entered full economic collapse, a far more severe social crisis could ensue. Recent bouts of low-grade homegrown terrorism could spike. Economic paralysis, many here argue, might create a quasi-failed state on Europe’s strategically vital southeastern frontier, from which more and more illegal immigrants from the Middle East and Asia could stream into the European Union.
At the same time, Europe could confront a broader threat, with the chink in the euro’s armor undermining reassurances from European leaders that bigger troubled economies such as Spain and Italy would not be the next to exit.
Greece’s woes have been a train wreck 2 1 / 2 years in coming, giving Europe time to prepare for a Category 5 economic storm. But there are increasing signs that a rupture in the euro will prove devastating. Panicked investors this week, for instance, began dumping shares of Bankia, Spain’s second-largest bank by domestic deposits, amid fears of a run on deposits. Facing its own fast-escalating banking crisis, Cyprus may soon need to follow Greece, Ireland and Portugal in seeking a bailout.
Disruptions would probably not be confined to Europe. U.S. companies that do business with the globe’s biggest trading bloc would nervously watch as traders sorted out new values for the euro and a separate Greek currency, as well as for countries from Morocco to Lithuania that peg the value of their national notes to the euro. Americans leaving on European vacation would need to drag out their calculators. From London to New York to Tokyo, banks, currency traders and travel agencies are hedging their bets ahead of a potential Greek exit. The looming possibility even has its own buzzword, “Grexit.”
Yet much of what happens next is in the hands of the Greeks.
Greece’s woes are a legacy of the credit bubble of the 2000s, when — like American subprime mortgage borrowers — this nation with was lent too much cheap cash. It spent it poorly, lied about its economic data and fell into a spiraling debt crisis. Although the 16 other members of the euro bailed it out, the rescue came with demands of austerity that have plunged this Mediterranean nation into a brutal multiyear recession, triggering rising unemployment, homelessness and a mounting health crisis.
The impact has been so severe that even German Chancellor Angela Merkel — Europe’s top fiscal disciplinarian — has opened the door to “stimulus” in Greece, in an apparent attempt to woo back voters threatening to usher in a government that could break the terms of the bailout deal completely.
The euro zone “either has to make up or it is looking at a potential breakup,” British Prime Minister David Cameron bluntly said this week.
The mechanics of a currency switch would be chaotic, if technically simple, with a return to the drachma or a new national coin of any other name potentially taking the early shape of government or bank-issued IOUs. Greece, which now prints euros along with the other nations that share the common currency, could within weeks alter its presses to churn out national bills — or outsource to specialized companies abroad, which, for instance, produced the new dinar for Iraq.
Yet here in Greece, an exit from the euro is still considered a worst-case scenario, and one to be avoided at all costs.
From his sunny, glass-walled boardroom in suburban Athens, Nikos Niakaros should be among those eager to see Greece ditch the euro. An exporter of briny feta, he is well positioned, international economists say, to reap the benefits of a cheaper, national currency. It should, in theory, boost his sales by making his cheese more competitive in his major markets, Europe and the United States.
But instead, Niakaros is sweating bullets. Like many Greek exporters, he depends on a supply chain of imported goods — from specially enriched feed for his sheep to the natural gas used to power his factory — that would spike in price if Greece left the euro. Business loans, meanwhile, would be far more expensive and harder to get. Add unpredictable jumps in inflation as happened during the era of the drachma, and, Niakaros said, the cost benefits of a cheaper currency would disappear.
Those potential woes from a new Greek currency underscore the counterpoint to those who say leaving the euro would allow Greece to emerge stronger and more competitive after a few hard years of adjustment. True, its manufacturing base has disintegrated because it is uncompetitive. But government policies that predate euro adoption in 2002 caused the worst of the damage, suggesting that the problem here has less to do with the currency and more to do with inefficiencies and political mismanagement of the economy. Many here argue that the euro has actually aided Greece by taking monetary policy out of the hands of Greek politicians.
“Those who think we will be better off without the euro do not know Greece,” Niakaros said.
Polls show that the vast majority here wants to stay in the euro, one of the few things they can count on in a country wracked by political and economic uncertainty. But they also feel pushed to the breaking point by Europe’s tough terms.
Now, like Odysseus — who picked the course by the sea monster Scylla, losing six men but escaping with his life — they must try to choose the less fatal route. A new poll released Friday suggested that Greek voters are shifting back toward parties prepared to accept more fiscal pain in return for staying in the euro.
“We’re all afraid, and that makes it harder for all of us,” said Moreti, the widow. “But I think we must stay in the euro. We cannot make it on our own.”
Special correspondent Karla Adam in London contributed to this report.