'Grexit': Who Would Pay for it?

CEPS Policy Brief No. 272

8 Pages Posted: 19 Jun 2012

See all articles by Cinzia Alcidi

Cinzia Alcidi

CEPS; Graduate Institute of International and Development Studies (IHEID)

Alessandro Giovannini

European Central Bank (ECB) - Directorate General International and European Relations

Daniel Gros

Centre for European Policy Studies, Brussels; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 23, 2012

Abstract

The eurozone countries are currently sitting on an aggregate exposure to Greece exceeding €300 billion. If the country were to exit the eurozone, it would certainly not be able to service its debt in the short run when the exchange rate overshoots. Over the longer run, however, the exchange rate is likely to return to a longer-run equilibrium and growth is likely to slowly resume closing the output gap. Moreover, exports are likely to grow by more than GDP, thus increasing over time the capacity of the country to service foreign debt. Therefore, the authors conclude, whether or not an exit from the eurozone is followed by default on the official debt depends decisively on the willingness (and ability) of Greece’s European partners to wait and finance the bridge between the short and the long run.

Keywords: eurozone, Greece, EU, euro, exit, exchange rate

Suggested Citation

Alcidi, Cinzia and Giovannini, Alessandro and Gros, Daniel, 'Grexit': Who Would Pay for it? (May 23, 2012). CEPS Policy Brief No. 272, Available at SSRN: https://ssrn.com/abstract=2086480

Cinzia Alcidi (Contact Author)

CEPS ( email )

1 Place du Congres
Brussels, 1000
Belgium

Graduate Institute of International and Development Studies (IHEID) ( email )

132, Rue de Lausanne
Geneva, 1211
Switzerland

Alessandro Giovannini

European Central Bank (ECB) - Directorate General International and European Relations ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Daniel Gros

Centre for European Policy Studies, Brussels ( email )

1 Place du Congres
B-1000 Brussels, 1000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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