Greece's Withdrawal from the Eurozone Could Cause Global Economic Crisis
PR Newswire GÜTERSLOH, Germany and BRUSSELS, October 17, 2012
GÜTERSLOH, Germany and BRUSSELS,October 17, 2012/PRNewswire/ --
Bertelsmann Foundation warns of extensive domino effects
Greece's exit from the Euro bears the risk of kindling a wildfire throughoutEurope and possibly even on an international level and may result in a worldwide economic crisis. Countries affected would include not only Southern European nations or EU members, but also the USA, China and other emerging countries. This was the conclusion reached by a national economic assessment conducted by Prognos AG on behalf of the German Bertelsmann Foundation, which analyses the financial consequences and, for the first time, also possible declines in growth for Germany as well as for 42 of the most important industrial and emerging countries until the year 2020 in the wake of a departure from the Euro by Greece or other crisis-stricken countries. The scenario calculations present the authors of the study with some serious concerns.
For Greece, the scenario would involve national insolvency, a massive devaluation of the new Greek currency, unemployment, falls in demand and many other problems, effects that will quickly show their mark on its direct trading partners. In the Southern European country alone, the ensuing losses of growth would amount to164 billion eurosor14,300 eurosper person by the year 2020. The 42 top national economies in the world would already have had to absorb total losses amounting to674 billion eurosin total.
However, since it is not possible to eliminate the potentially massive ramifications thatGreece's exit from the Euro would entail for other Southern European crisis-ridden nations, the calculations were extended to include these scenarios. For example, in the event of the additional exit of Portugal from the Eurozone, this would mean a loss of 225 billion eurosfor Germany by 2020 and necessary debt write-offs of99 billion euros. Globally accumulated losses in growth would add up to2.4 trillion eurosUSA would be hit with 365 and at this point, of which the China with275 billion eurosrespectively. With this scenario, per capita losses in income inGermany would total2,790 eurosover eight years.
"We must now be absolutely sure of preventing the conflagration from spreading in the current situation," warnsAart De Geus, Chairman and CEO of the Bertelsmann Foundation's Executive Board. The market uncertainties brought about by the Greek or Portuguese departures would harbour the danger of drastically increased risks for the already highly debt-burdened economies of Spain and Italy, so that a further erosion of the Eurozone would be inevitable. The European Solidarity Group would find it virtually impossible to deal with even the burdens incurred to the countries themselves by their departures, according to De Geus.
But the scenario would become even more dramatic ifSpain's exit were to be taken into the equation. IfSpain were to leave the Eurozone as well, declines in growth in Germany would increase to850 billion eurosby 2020, with outstanding debts of266 billion eurosbeing waived. In the USA, it would mean a loss of growth to the extent of1.2 trillion eurosand in the 42 countries under review it would result in losses of7.9 trillion euros. Even the accumulated per capita losses would soar upwards in this scenario. The result would be a loss of10,500 eurosper capita over eight years by 2020 for Germany, a loss of3,700 eurosin the USA and as much as18,200 eurosin France and 16,000 eurosin Spain respectively.
The situation would spiral totally out of control if the Euro crisis were to reach the point whereItaly would also have to leave the Eurozone: Germany would be giving up1.7 trillion eurosand would have to write off455 billion euros. Here economic losses in Germany with more than21,000 eurosper capita would in some cases be even higher than in the exiting countries Greece with more than15,000 euros, Portugal and Italy with nearly17,000 eurosas well as Spain's20,500 euros. The result would be increased unemployment for the population: the number of unemployed in Germany alone would rise to more than a million by the year 2015.
This scenario would eventually lead to a dramatic international recession and global economic crisis. By 2020, growth losses in the countries under review would reach a total of17.2 trillion euros. In absolute terms, losses suffered would be the highest in France at this point (2.9 trillion euros), in the USA (2.8 trillion euros), in China (1.9 trillion euros) and in Germany with roughly1.7 trillion euros.
In their overall appraisal, the authors arrived at the following conclusion: an initially isolated exit byGreece and its national insolvency may well be something that could be dealt with from an economic point of view, but the effect would be that the global economy would be thrust into a deep recession as their impact is difficult to calculate, and the recession would not stop even at economies outside Europe.
In addition to the purely economic consequences, considerable social tensions and political instabilities must be taken into account - primarily in the countries exiting from the European Union, but also in other economies. The danger of kindling a wildfire with all the economic and political consequences, as well as the social follow-on effects of a Greek national insolvency and exit from the Euro present a threat which the international community of states should attempt to prevent at any cost - even outside of Europe.
About the study: The calculations are based on Prognos AG's econometric VIEW model, which is able to reproduce the national economies of 42industrial and emerging economieson the basis of empirical data over an extensive period of time and in great detail. For comparison purposes, uniform exit assumptions or estimates were used to calculate the exit costs of the four countries. Thus, for all countries a debt average of 60 per cent was assumed for private as well as public debtors and a 50 per cent devaluation of the newly introduced currencies in the exit countries was compared with the euro.
Further information can be accessed on the web:http://www.bertelsmann-stiftung.de
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