Can Greece Leave?

Is Grexit even possible?

It strikes me that the best Greece can do with a Drachma is to create a two-currency system, sort of like Cuba or Venezuela, or at best Argentina; countries whose politics the Greek government seems to admire, and whose economies its may soon resemble.

If the government brings back the Drachma  as a way to pay pensions, government salaries, and bank accounts, Euros will still circulate in Greece.

18% of Greek GDP is tourism. That number may be understated -- I don't know if it includes tourist spending at restaurants, stores, transport, and other places that mix tourists and locals. Tourists will spend Euros, not Drachmas. So hotels, gas stations, restaurants, grocery stores, clothes stores, airlines, car rentals, etc. will likely still gladly take euros and euro credit cards, and from locals as well as tourists.

I looked up Greek GDP at the OECD.  Of 157 billion euros value added, agriculture is a tiny 6, industry 18, of which manufacturing 13.  However, services are 130, 80% of the total.  Here, the big items are  "distribution, trade, repairs, transportation accommodation and food" 41, real estate activities 34, and public administration 39.   Exports and imports are each about 60 out of 180 billion euros.

Now, anyone exporting -- 60 out of 157 -- has access to euros and likely invoice in euros thank you very much. Anyone importing will need to get their hands on those euros.

(Interestingly most exports are services, most imports are goods. I can't get a handle on what services Greece exports, and thus whether devaluation would make much difference.)

The 41 billion of "distribution, trade, repairs, transportation accommodation and food" services will surely take euros as above, to convenience the tourist trade.  I can't fathom how 34 billion euros are real estate services -- not construction -- so I can't guess really if that is euros or Drachmas.  The 39 billion of public administration gets Drachmas.

So, the Drachmaized Greece that I see is not the cleanly devalued newly competitive powerhouse that some on the left seem to envision.  Instead I see a two-currency economy. Pensioners and government workers and anyone unlucky enough to still have a Greek bank account get Drachmas. Hotel owners, restaurant owners, and exporters get euros, above or under the table.

In this scenario, I can't imagine a freely convertible currency. Will the government really give 100 Drachmas to someone who used to get 100 Euros, with an exchange rate below half? The point of not cutting salaries was political. So we are almost sure to see capital controls, exchange controls, and a fictional overvalued exchange rate, so Greece can pretend to pay pensioners and government workers.

It's not a pretty thought. Sticking with the euro seems a far better option, just like sticking with the meter.