Eurozone Crisis: Who Wins If Greece Leaves The Euro And Brings Back The Drachma?

Huffington Post UK  |  By Posted: Updated: 15/05/2012 11:56

Drachmas
Greek drachmas (file)

Even as European markets tumbled amid fears Greece could leave the euro, at least one stock was on the rise: a currency printer.

De La Rue is a British security printing and cash handling company listed on the FTSE 250 index, which has previously indicated it could benefit if - or when - Greece needs to print a new currency.

True, Greece has its own state-owned printer for such a task, according to the Independent. But analysts say the speed at which the currency would have to appear would give De La Rue a good chance at grabbing a new lucrative contract anyway.

In November, De La Rue boss Tim Cobbold said a Greek exit from the single currency could lead to new "opportunities" for the company.

The markets appeared to agree, and De La Rue's stock price rose 31.5p to £10.24 on Monday.

So for De La Rue at least it's not all doom and gloom. So who else likely to benefit if Greece was forced to return to the drachma?

In the short term it's not likely to be the average Greek citizen, Nick Parson, head of strategy at National Australia Bank, told the Guardian - even though the alternative of massive austerity cuts and a long depression isn't much better.

Indeed with huge public job cuts, GDP retreating 6.2% in the first quarter of 2012 compared to a year ago and shocking (albeit rare) stories of citizens committing suicide over their debts, Greece has a long way to go to see anything other than a choice between "awful" and "really awful".

"If it exits, it could see the collapse of the domestic banking system, the decimation of private savings and a crippling increase in the cost of imported goods and energy," Parson said.

Devaluation will also be a problem. Parson points to the example of Argentina, which abandoned a 1:1 parity with the US dollar in 2002 only to see the peso lose 75% of its previous value.

However the rest of the eurozone could be much better off, he adds.

"A Greek exit could be the trigger for a stronger and more stable euro, led by politicians and institutions with a clear interest in both its success and theirs.

"Should Greeks choose self-determined, rather than European-imposed pain, the outlook for financial markets should be much brighter by the year end," he said.

Other analysts paint a similarly bleak picture. According to analysts speaking to Forbes, the Drachma would quickly lose 50 to 60% of its value, the Greek banking sector would collapse as funding costs rise, and business would find itself crippled.

Forbes added that companies with exposure to Europe - from banks to McDonald's - would see sales slow and profits decline.

Other economists argue that Greek businesses would benefit from a new currency - and least in the short term - because a Greek default and exit would remove the pressure of debt, "boosting competitiveness, lifting austerity and allowing for proper restructuring of the economy" said Costas Lapavitsas, professor of economics, School of Oriental and Asian Studies at the University of London.

So what about the UK?

British banks are already working to make sure that if Greece does leave the euro, they can profit. For while Greece would probably impose controls to restrict foreign exchange, it would still be possible for banks to trade the new currency with more complex derivatives.

"Forex desks can get ready relatively quickly. It depends on exactly how the exit from the euro happens," said Lewis O'Donald, chief risk officer at Japanese investment bank Nomura, to Reuters.

Bu despite the banks readying themselves to make the most (money out of) of any exit, Britain should be under no illusions that it will be better off if Greece leaves - at least according to Chancellor George Osborne.

Speaking in Brussels, where he is attending talks between European Union finance ministers over the continuing crisis, Osborne criticised the "open speculation" by some eurozone members.

But he also said that "it's the uncertainty that's causing the damage" - so will the UK eventually be better off once Greece's future is determined one way or the other - whatever route it decides to take?

John Cridland, the boss of the Confederation of British Industry, says that either way the UK still has much to fear - especially since there is a real chance the entire EU could go into meltdown if Greece makes an unprecedented exit from the single currency: "Clearly the concern is it will impact not just on the wider eurozone but the British economy, given half our exports go to the eurozone," he said, according to the Daily Record.

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Even as European markets tumbled amid fears Greece could leave the euro, at least one stock was on the rise: a currency printer. De La Rue is a British security printing and cash handling company l...
Even as European markets tumbled amid fears Greece could leave the euro, at least one stock was on the rise: a currency printer. De La Rue is a British security printing and cash handling company l...
 
 
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Mickey Mouse 1
There are no lies or deceit on a chess board.
05:36 PM on 05/15/2012
The Greek people will win.
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TwoZeroOZ
06:47 PM on 05/15/2012
You're very uninformed.

The Greek people will lose, no matter what they do. It's quite an unfortunate situation.
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Mickey Mouse 1
There are no lies or deceit on a chess board.
07:28 PM on 05/15/2012
They'll be out of a "one size fits a;l" Europe.
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Paul Wagland
Resistance is fertile
04:59 PM on 05/15/2012
I guess holidaymakers would benefit from Greece leaving the Euro. And Greece would no doubt be very happy to see them.
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turkeylurky
Just keepin it real........
03:25 PM on 05/15/2012
This what Canada would look like if Mulcair & the NDP were running it.
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Maria Korovessis Sewell
To decimate is to reduce by one tenth.
04:55 PM on 05/15/2012
That you can't distinguish between the factors that affect Canada's economy and Greece's, their components and structure, speaks to your level of comprehension on this issue. Leave aside for a moment that the main conservative and social democrat parties ruled fairly equally in the years leading up to this moment, and share the responsibility for the mess.
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philhellene
Far Left and Proud of It!
03:05 PM on 05/15/2012
"British banks are already working to make sure that if Greece does leave the euro, they can profit."

And, therein, lies one of the largest problems with present world economics. They have become players in a worldwide gambling casino, not passive holders of others' wealth. investing just prudently enough to ensure a decent interest rate.
02:34 AM on 05/17/2012
Being aggressive is the only way to "prudently ensure a decent interest rate" in a world where SO MANY FACTORS can swing the stock markets and affect returns on investment. It would take a global change in our understanding of markets, money, etc. for this trend to end.
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Hugh Albert
Moderation in somethings
12:14 PM on 05/15/2012
When the best case scenario is described as a disaster it is hard to be optimistic about Greece, either in or out of Euroland.
It is sickening that the only sector planning to make money from a default is the banking sector, but that is no more than we have come to expect. The risk officer for Nomura seems quite sure that forex desks will be ready, able and willing to deal the drachma when, not if, it comes.
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04:08 PM on 05/15/2012
Not quite true....De La Rue has already realized profits from mere speculation of Greece reinstating the Drachma.
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Hugh Albert
Moderation in somethings
10:05 AM on 05/16/2012
I did specify 'sector'. I am aware of De La Rue, but it is one company and it may or may not be involved in printing drachmas, should they be required. Greece has its own banknote printer, though it is doubtful that they could produce enough in the time frame likely to be set.