The Grexit scenario

Earlier this month, the Greek economy faced a deadlock when the national elections remained largely inconclusive as the parliament was fragmented by a strong anti-austerity vote. Shunning up austerity is as good as forsaking all ties with the eurozone - the bloc that has been bailing out the Greeks every time theyve fallen on their faces.
The polls have been moved to mid-June, and are being termed as being equivalent of a referendum for deciding whether the country should retain its precious or not-so-precious eurozone membership. The new government will have to take a call on further austerity to qualify for further bailout funds - a decision that could mean the difference between riotous protests, or an economic mess.
Needless to say, a Grexit - the term used for Greeces possible fate in the bloc - could have obnoxious repercussions for the Greeks. The drachma will be back, will be devalued and will keep the exchange rate quite topsy-turvy for quite some time. Greek banks will be under extreme stress and access to capital markets will be strained.
On the public finance side, public debt will be colossal denominated in the new currency, and the impact on inflation will be devastative thanks to ensuing inflationary expectations. Hyperinflation would not be anything surprising. Higher interest rates to stabilise the exchange rate and to control inflation would mean the debt scenario would only deteriorate more.
On the flip side, staying with the eurozone means repetitive rounds of austerity requirements to get more bailout funds. This is more like a ventilator, that actually makes the scenario worse for an economy that is already ailing under low growth rates.
The implications for the eurozone in case Greece waves goodbye is not very pretty either. Risks of a contagion on other weak economies such as Spain and Portugal will be very stark, and capital flight from these vulnerable members will be accelerated.
Losses on Greek assets owned by the central bank of other eurozone economies will be a grave downside for even strong economies like Germany. And the effects on the euro, is anybodys guess.
Yet, many analysts argue that getting rid of the ugly duckling will push the other economies to work more quickly and efficiently towards putting their economies in order, as they risk losing the prestigious membership if they don straighten up.
The possibility of a Grexit, however, is becoming more of a possibility every passing day. Leaders of eurozone might as well start planning towards making this exit as less messy as possible, because messy it will be.
In case the leaders of the bloc decide to sustain the Greek lifeline for as long as they can, perhaps they should work along more pro-growth policies rather than slapping arduous and counterproductive austerity conditions on already fragile economies.