I'm often compared to a harbinger of doom, but I believe that it's better to be prepared by thinking through the possible eventualities of a situation. It has struck me over the last few years that the number of possible outcomes from any current situation is so vast that it is nearly impossible to forecast the future (even in a game of chess, the number of possible games is around 10120, the 'Shannon Number'). In the dark days before Lehman's collapse, nobody had a clue as to what might happen afterwards (it turns out that the world didn't end, after all, but it was one of the possibilities). Anyway, despite the wide variety of future outcomes, it's possibly worthwhile to contemplate the effects of the current instability (and weakness) of the Euro on the gypsum industry.
Just to be clear, I am not advocating a 'Grexit' - a Greek exit from the EuroZone - it is just that the markets now suggest that there is only a small chance that Greece will not leave the Euro. A run on Greece's banks and the declination of the ECB to guarantee them would lead to default, as might the rejection of further austerity by the electorate... or a number of other possible scenarios as well. Euro ejection would quickly follow any default.
The Euro100bn lent to Spain's banks (with as-yet unclear strings attached) is not a solution to the problem - it is a sticking plaster that buys some time (but which increases Spain's indebtedness by Euro100bn, decreasing its credit-worthiness and increasing its borrowing costs). Spain could yet become the first country to crash out of the Euro, partly because it is too big to fail and too big to save. But returning to Greece, which could shortly leave the Euro party: What would be the effect of a 'Grexit'?
In the short term, all would be chaos. An enforced bank holiday of at least three days (probably longer), the stamping of all 'Greek Euros,' forced conversion of Greece-based bank accounts to New Drachma, renegotiation of contracts (and subsequent law suits lasting years), the bankruptcy of the country (no access to international debt markets for a decade - like Argentina), the collapse of its banks (ATMs not working, shortage of liquidity and real cash), non-payment of government employees or pensions, exodus of workers overseas - and many other unforeseeable things besides...
The New Drachma will immediately depreciate by 50-80% compared to the Euro. Greece will not be able to afford to buy anything in Euros and will become export-oriented (selling plaster, wallboard, lignite, cement etc) in order to bring in hard currency.
Any multinational company leaving cash in Greek banks 'overnight' risks having that cash frozen and effectively devalued at any point if a Grexit occurs... and that is something that no shareholder will forgive. Prudent multinational CFOs will ensure that their Greece-based funds are cleared from Greek banks every day - as they routinely do in the banking industry. Both wallboard makers in Greece are foreign-based (Knauf and Saint-Gobain).
Companies based outside of Greece but with plants in Greece will see the value of their domestic sales plummet (in hard currency terms, anyway). If these plants rely on imported materials (fuel, spare parts etc), then the cost of these materials (in Euros/Dollars) will increase compared to the value of domestic sales (in New Drachma). It will become less profitable to make and sell goods in Greece. Inevitably, there will be a further fall in domestic wallboard and plaster demand from the already historically low levels. Exports will be prioritised.
Longer term (five years plus), the boost to Greece's tourism industry (which accounts for 20% of GDP) and to the competitiveness of its industry and exports of a Grexit from the Euro would give the country a big boost.
According to a recent article ""The treaty doesn't foresee an exit from the EuroZone without exiting the EU," the European Commission has said. The option of leaving the EU was only added in Article 50 of the Lisbon Treaty in 2007. So under its current obligations, for Greece to exit the Euro or be thrown out, it would have to leave the EU. Leaving is straightforward: it involves a member state notifying the European Council - that is, the leaders of EU countries - that it wants to go. The Council then agrees the terms of the exit via a qualified majority. Would leaving the EU be the end of the world for Greece? Probably not."
Ditching the Euro means devaluation, Greece setting its own interest rates and monetary policy, increased competitiveness and a boost to industry and tourism. Examples of successful economies inside the EU and outside the Euro point the way. Greece outside the EU (like Switzerland, Norway and Liechtenstein) would have access to European markets. In the longer term, leaving the Euro would - for Greece - possibly not be a bad result. For everyone else in the Euro (and the wider EU, including non-Euro countries) the implications are very far from positive (contagion, bail-outs, volatility, civil unrest, unemployment etc etc). Good luck!
