From the Telegraph:
Greece's ex-premier Lucas Papademos has put a figure on the post-drachma fallout.
"Some calculations I have seen suggest that inflation could accelerate to 30pc or even to 50pc, depending on the impact of such developments on inflation expectations and on the strength of the second-round effects of price increases on wages," he told the Wall Street Journal.
It certainly could, but there is no reason why it should. That would be a policy error.
Iceland saw a 50pc crash in the exchange rate after the Viking bust in late 2008. Its inflation was 12pc in 2009, 5.4pc in 2010, and 4pc in 2011. (OECD data). It is ticking up now to 6pc as the economy recovers briskly but that is a different story.
Technically, Greece could match this – or could come close to doing so. It has first-rate economists. The EU Task Force has done wonders for structural reform. In some respects, Greece is (very belatedly) pulling ahead of Germany in supply-side labour rules.
Mr Papademos – who was an excellent MIT professor and was one of just two ECB governors of Nobel Prize calibre over recent years (Orphanides is the other, both Greek-speakers) – said the global costs would be €500bn to €1 trillion, depending on cross-border contagion, etc, etc.
Well, yes, perhaps. But one presumes that global central banks and the world authorities would/will step in with massive liquidity on Drachma Day to prevent such contagion. That is why the smart money crowd is preparing for a brisk – if brief – market rally when the moment comes.
In my view the risks are different. The danger for Euroland is slow contagion later once the sanctity of monetary union is violated, compounding the underlying crisis as Portugal, Spain, and Italy sink deeper into (policy-driven) debt-deflation....MOREAlso at the Telegraph, their Debt Crisis: Live blog:
Debt crisis: prepare for Greek exit, eurozone nations told
