Nobel economics laureate Christopher Pissarides said wealthy Greeks would benefit at the expense of poorer citizens were the country to exit the euro.
“A lot of Greeks” have withdrawn money and deposited it with banks elswhere in the 17-nation currency zone, Pissarides said in an interview in London today. If the country returned to the drachma, the new currency would be so devalued they could buy it cheaply on international markets with the cash they’d exported, enabling them to buy more assets in Greece.
While poorer Greeks are equally able to appreciate the difficulties facing their country, they’re not as able to shield their funds from an exit from the common currency, Pissarides said. They need to preserve quick access to their savings, which isn’t as easy to do if it’s held at a foreign bank, and such lenders may not always accept small deposits.
“It’s the wealthy who will benefit because that’s who’s able to move their money abroad,” he said. “Wealthy Greeks have already done it, whereas the small saver is not going to do it.”
Greece is due to hold second elections next month after a May 6 ballot left politicians unable to form a government, raising speculation the nation may exit the euro area. Households and businesses pulled 34 billion euros ($42 billion) from Greek banks in the 12 months ended in March, 17 percent of the country’s total, according to the European Central Bank.
Pissarides, who is a professor at the London School of Economics, said it’s also harder for small savers to locate foreign banks willing to take their money, he said.
“Foreign banks do not always accept small deposits from non-residents even though they’re part of the eurosystem,” he said. “If you’re a small shop owner in Athens or one of the smaller towns, how do you find a foreign bank to open a foreign account, do you take your cash in hand and fly off to Italy or Switzerland or wherever? It’s not that easy.”
Speaking at an Open Europe event earlier, Pissarides said Greece would be better off if it could relax its austerity program and get more help from bailout partners. In return, it must push on with structural reforms. He said a euro exit would be a “complete disaster,” describing a situation of empty shelves in supermarkets, unpaid government workers and banks without money.
“What are Greeks going to do? Obviously go out in the street and burn the square,” he said. The impact on the poor is “the worst outcome at all, it almost keeps me awake at night.”
The Nobel laureate said the dynamic of households removing money from local banks applies to other countries in Europe that are facing challenges from investors because of their public finances.
“It’s happening in Spain as well,” Pissarides said. “It’s the big risk in Spain, that money will leave the country and banks will need to be recapitalized and find more money internally.”