Politically speaking, Greece's return to the drachma currency would be a defeat. But economically speaking, it doesn't threaten European stability, and could offer the Greeks a chance at redemption.
MUNICH — The European Monetary Union was designed to last forever. It logically follows that there is no script for what to do if one of its members leaves. Given such strong European economic ties, a Greek exit would be historically singular and would of course entail risk. No one can predict exactly how governments, companies and citizens would handle a so-called "Grexit."
But if the Greek government doesn't see any other way out, then we'll simply have to accept a new reality. The idea of a politically unified Europe would take a serious battering because suddenly the Eurozone would appear like a club where countries can leave whenever they wish.
Still, it seems unlikely that other European states would follow the Athens example, which is one of the key reasons we know that Europe's economy would survive a Grexit.
It's even possible to imagine positive aspects of such a scenario. A Eurozone with only 18 members would be more stable and therefore better suited to survival. Since the inception of the European Monetary Union, Greece has always been an exception. Joining the Eurozone in 2001 was more of a political wish than an economically justifiable development.
It became obvious in May 2010 that Greece was bankrupt. The International Monetary Fund (IMF) and the European Central Bank (ECB) tried to prevent spread of the Greek debt disease to the rest of the EU with two "care packages." And the danger has been contained.
So it's hardly imaginable that Spanish bank customers would stampede financial institutions in panic if Greece leaves the Eurozone. Greece is even considered to be a financial exception in countries such as Italy, Ireland and Portugal. Athens refuses to implement the tough economic reforms that others have obediently adopted.
Europe's banking sector is also more stable than it was five years ago. The ECB's decentralization and the recapitalization of banking institutions have served as a fire wall. In addition to this, Europe's banks have long lost faith in Greece, and factored a potential Grexit into their calculations when dealing with the country's financial institutions. Panic would only reign if something unexpected were to happen, and a Grexit would be anything but unexpected.
Stock prices would initially take a dive, no doubt. And it's also possible that interest rates in Portugal, Italy and Spain would rise. But right now, these rates are at historical lows, so there's room to maneuver. What's more, the ECB and the European Stability Mechanism (ESM) are always ready to nip potential financial crises in the bud. On top of that, stock brokers are eternal opportunists and would realize that Greece's return to their currency is the best solution for both sides.
Resurrection of the drachma could also offer Greece a real chance at redemption. A cheap currency would lend itself to providing aid for growth even though the transition wouldn't be easy. Imports would become more expensive, while medication and other vital goods could become scarce. But Europe should and would help. Greece would still be a part of the EU, after all, if not a part of the same monetary and economic union.
The euro would have to be removed from Greece altogether. That process would entail everything from reconfiguring simple vending machines to rewriting entire financial software systems. These are not trivial tasks, but importantly, they don't pose a threat to Europe.
What would be worse is if everything continued the way it has, more endless negotiations between creditors and Athens over economic policies and reforms. Delays. Postponements.
Though the taxpayer costs for a Grexit would be high — Germany alone has issued 50 billion euros in loans to Greece — perhaps it's just the price for political naivety, for having gotten Greece on board in the first place. And who knows, maybe Greece will reapply to become part of the Eurozone again in a decade, when it is stronger. And even if it doesn't, it seems that the UK and Denmark are managing well without the euro, so why not Greece too?