Eurozone finance ministers meet Monday to resolve all the issues surrounding the 130 billion euros ($170 billion) bailout package for Greece. The question that remains is what will happen to Greece without this rescue package?
There is certainly a remote possibility that if eurozone finance ministers are not able to sort out the issues, which could convince them that a greater supervision and control of Greece's economy in return for the approval of bailout package is attainable, then the approval will not be granted.
In such a scenario, Greece faces a looming deadline on March 20 when it needs to make repayments on a 14.5 billion euro bond, or become the first country in the euro's 13-year history to default. At the same time if Greece defaults, the consequences can be devastating.
In such a scenario, Greece will have to abandon the euro and restore its old currency, the drachma. If Greece exits the eurozone, its banks will go bust, foreign exchange will be scarce and rationed, inflation and unemployment will soar.
The Greek banking system would breakdown after the exit from euro and any new currency adopted by Greece would, in all possibility, be heavily devalued. The direct consequence of this is that imported goods will be exorbitantly valued for most of the population. Above this aspect, it is highly probable that the country will face a high rate of inflation, which would further eat into the value of the new currency.
In addition, if one country is made to leave the euro, there are higher chances for a few others especially Portugal, Spain and Italy to follow the road which might lead to a drastic collapse of the economy of Europe that could in turn have serious repercussions on the global economic situation. Already with the crisis looming large in Europe, many countries face reduced growth due to diminishing demand for goods in European countries. So a precedence of Greece leaving the euro and defaulting should be highly avoided.
There are important lessons to be learned from the situation of Greece, which has failed to deliver on its promises toward privatization and major reforms. There is certainly a need to adopt control measures and also implement structural reforms in order to make sure that competitiveness is restored among the countries.