Greece is holding parliamentary elections this Sunday.
One of the concerns is that if the left-leaning, anti-bailout SYRIZA party wins, the Greece may soon leave the eurozone.
BlackRock’s Russ Koesterich argues that leaving the eurozone is a pretty horrible path for Greece. In a new video, he lays out four reasons why.
- “You’re going to effectively wipe out the savings of much of the middle-class.”
- “If you go back to the drachma – and that drachma is going to depreciate as it almost certainly will against the euro – you also run the risk of inflation.”
- “Typically when you see a country leave a currency union and depreciate their currency, part of the benefit is that it makes their export sector more competitive. Greece has a very small, and at this point uncompetitive export sector. So, they won’t get that benefit.”
- “Greece still runs a very large primary deficit. In other words, the government cannot pay their bills even before you figure in the costs of interest payments. If Greece leave the euro, the European Union will no longer be subsidizing that deficit, which means the Greek government is going to have to cut back on its spending dramatically and pose even more pain on the Greek population.”
Koesterich believes that Greece still faces tremendous pain in the form of austerity if it stays in the eurozone. But he believes its a much better option than leaving.