ATHENS , (Reuters) – Greece would suffer disastrous consequences if it ditched the euro for the drachma, the country’s central banker said in a newspaper interview, warning that such a move would result in a massive devaluation.
“A return to the drachma would mean real hell, at least in the first years,” George Provopoulos, governor of the Bank of Greece, said in an interview with Sunday’s Kathimerini newspaper. “Living standards would plunge. The new currency would be significantly devalued, possibly by up to 60-70 percent.”
Debt-saddled Greece, which joined the euro in 2001, is struggling to meet the bailout terms set by its international lenders and could default if there is no deal with private bondholders on a debt restructuring before March.
Greece is negotiating a bond swap scheme which is a pivotal part of a second, 130-billion-euro bailout package agreed by euro zone leaders in October. The restructuring aims to cut its debt by 100 billion euros and render it more manageable.
Athens faces bond redemptions of 14.5 billion euros ($188.23 billion)in March.
Provopoulos said proponents of a return to the drachma were wrong because it would bring the country back decades and undo significant progress.
“I don’t believe Greeks would want to experience such a nightmare scenario which would entail huge risks for the country’s security,” he was quoted as saying. “I am certain that Greeks would not allow a return to the distant past.”
A Kapa Research poll for Sunday’s To Vima newspaper showed more than 77 percent of Greeks want the coalition government to do all it takes to ensure the country stays in the euro zone, a bloc that now includes 17 countries.
Banks and investment funds have been negotiating with Athens for weeks on a so-called private sector involvement scheme under which they will accept a nominal 50 percent write-down on their Greek bond holdings in return for a mix of cash and new bonds.
If all ends well, Greece will reduce its debt-to-GDP burden from 160 percent to 120 percent by 2020. Failure to reach a deal could trigger wider fallout in the euro zone, which has been trying to cope with a spreading debt crisis.
Echoing these concerns, Greece’s outgoing representative at the International Monetary Fund, Panagiotis Roumeliotis, told Kathimerini newspaper that Greece could not afford an unsuccessful outcome in talks on the new bailout.
“If the new funding is not secured in time, anything can happen including a default, which could open the way for Greece’s exit from the euro zone,” Roumeliotis told the paper.
Gikas Hardouvelis, chief economic adviser to Greek Prime Minister Lucas Papademos, told Real News he was optimistic that the bond swap talks would reach a favourable outcome.