Greece is currently drawing up plans to exit the EU and return to the drachma as a possible contingency in preparation to miss IMF payments.
‘We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,’ says senior Greek official
It is going to be interesting to say the least, it is seeming more likely that Greece will actually choose to default and leave the EU. If it does, will they become the shining light of socialism or fall further into economic chaos like Venezuela.
The recovery of oil prices in the early 2000s gave Venezuela oil funds that it had not experienced since the 1980s. The Venezuelan government then initiated populist policies which initially boosted the Venezuelan economy and facilitated social spending which significantly reduced economic inequality and poverty. Such populist policies were questioned since their initiation and the over dependence on oil funds led to overspending on social programs while strict government polices created difficulties for Venezuela’s import reliant businesses. Venezuela under Hugo Chávez then suffered “one of the worst cases of Dutch Disease in the world” due to the Bolivarian government’s large dependence on oil sales. This negative impact on their economy was due to a sharp inflow of foreign currency, because of the discovery of large oil reserves. The currency inflows lead to currency appreciation, making the country’s other products less price competitive on the export market. In February 2013, Venezuela devalued its currency due to the rising shortages in the country. Shortages in Venezuela included milk, flour, and other necessities. In 2014, Venezuela entered an economic recession. Poverty and inflation also increased and as of December 2014, Venezuela’s inflation rate was 68.5%. Economic problems, as well as crime and corruption, were some of the main causes of the 2014–15 Venezuelan protests.
I’ll put my prediction on the table: the economy will go the way of Venezuela if Syriza implements it’s policies. Similar to the German unification, this is as close as we can possibly come to having real economic modelling to take emotive opinions out of the equation. Conversely, I also think that: leaving the EU is good for Greece if a responsible Government comes in quickly afterwards and allows incentive to enter the psyche of enterprise, a strong recovery will take place under a floated Drachma in these conditions.
Only time and action will tell…