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What would happen if Greece exited the eurozone?

Rumors are rife of a Greek exit from the eurozone. While no country has yet dropped the common currency, there are some indications of what will transpire if Greece does.

How would this affect the value of the euro? How would they determine the value of the drachma?

The uncertainty created by a Greek default and eurozone exit would certainly weaken the euro, at least in the short term. But in the longer run it could have the opposite effect.

“Taking out the most problematic part of the eurozone, both economically and politically, could theoretically strengthen the common currency,” says Raoul Ruparel, head of economic research at Open Europe, a London-based think tank. “Of course it depends on whether the eurozone succeeds in preventing contagion – the spread of mistrust in other countries’ ability to service debts.”

A new drachma would be a very weak currency – there is little in Greece's coffers to give it value. The devaluation relative to the euro could reach 50 percent, according to Mr. Ruparel. On top of that the Greek central bank would have to print massive amounts of fresh money to keep the banks afloat. These two factors could lead to hyper-inflation.

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