A Greek withdrawal from the eurozone was a hypothetical scenario, debated mostly in the early to mid 2010s, under which Greece would withdraw from the Eurozone to deal with the Greek government-debt crisis of the time. This conjecture was given the nickname "Grexit", a blend word combining the English words 'Greek' and 'exit',Economist Who Coined ‘Grexit’ Now Says Greece Will Stay in Euro. By Flavia Krause-Jackson. Bloomberg Business, 28 June 2015 A year in a word: Grexit. By Ralph Atkins. Financial Times, 23 December 2012 and which has been expressed in Greek as ellexodos ( from + ( + )). The term "Graccident" (accidental Grexit) was coined for the case that Greece exited the EU and the euro unintentionally. These terms first came into use in 2012 and have been revitalised at each of the bailouts made available to Greece after that.

Proponents of the proposal argued that leaving the euro and reintroducing the drachma would dramatically boost exports and tourism, while discouraging expensive imports, which would give the Greek economy the possibility to recover and stand on its own feet.

Opponents argued that the proposal would impose excessive hardship on the Greek people, the short-term effects would be a significant consumption and wealth reduction for the Greek population. This had the potential to cause civil unrest in Greece and harm the reputation of the eurozone. Additionally, it could cause Greece to align more with non-EU states.

Positions of eurozone governments

During the 2015 negotiations over a third financial assistance programme for Greece, several eurozone governments treated a Greek exit from the eurozone as a possible or acceptable outcome. These positions did not result in a formal eurozone decision to remove Greece from the currency union, and eurozone leaders ultimately agreed in July 2015 to open negotiations for a third Greek bailout package.

Germany played the most prominent role in putting a temporary Grexit option on the negotiating table. In July 2015, Reuters reported that the German government had argued that Greece could take a five-year "time-out" from the eurozone, with possible debt relief, if Athens did not improve its proposals for a bailout agreement. German finance minister Wolfgang Schäuble later said that some members of the German government would have preferred a temporary Greek exit from the eurozone to another bailout deal. Reuters also reported that Schäuble continued to regard a temporary Grexit as potentially the better option even after the bailout talks proceeded.

Finland also adopted a hard line during the same negotiations. Finnish broadcaster Yle reported that, after finance minister Alexander Stubb said Finland had not supported a Greek exit from the euro, Finland's policy line was made public and included the view that Greece could find a "sustainable solution" by temporarily exiting the single currency. Earlier reports stated that Finland was prepared to reject Greece's request for a third bailout, partly because of domestic political pressure within the Finnish governing coalition.

Other eurozone governments were described by contemporary reporting as being open to Grexit or taking a hard line on the conditions for Greece to remain in the eurozone. The Guardian classified Germany, Austria, the Netherlands, Belgium, Finland, Slovakia, Lithuania, Latvia and Malta as "open to Grexit" during the July 2015 negotiations, while distinguishing them from countries such as France and Italy, which argued more strongly for keeping Greece in the currency union. The same report cited Slovakia's finance minister Peter Kažimír as arguing that an amicable split between Greece and the eurozone would be preferable to allowing either Greece or the currency bloc to become a "zombie state".

By contrast, France and Italy publicly opposed Grexit during the July 2015 negotiations. French president François Hollande said there could be no temporary Grexit, while Italian prime minister Matteo Renzi argued against the humiliation of Greece and supported keeping the country in the eurozone.

Detailed events

The term 'Grexit' was coined by the Citigroup economist Ebrahim Rahbari and was introduced by Rahbari and Citigroup's Global Chief Economist Willem H. Buiter on 6 February 2012.

On 27 January 2015, two days after an early election of the Greek parliament, Alexis Tsipras, leader of the new Syriza ("Coalition of the Radical Left") party, formed a new government. He appointed Yanis Varoufakis as Minister of Finance, a particularly important post in view of the government debt crisis. During 2015 and 2016, the chance of a Grexit or even a 'Graccident' (accidental Grexit) in the near future was widely discussed.lefigaro.fr 18. February 2015: À quoi ressemblerait la sortie de l'euro de la Grècesueddeutsche.de 4. March 2015: Tsipras will die Machtprobe – und wird sie verlieren. - Die Grundregel der Finanzmarkt-Kommunikation in Krisenzeiten lautet: Klappe halten. Doch Athen tut alles, um seine hilfsbereiten Euro-Partner zu verprellen. Der Austritt Griechenlands aus der Währungsunion steht bevor.Deutsche Welle: «Ο Βαρουφάκης πρέπει να παρουσιάσει έργο»spiegel.de 7. März 2015: Interview mit Alexis Tsipras Zitat: SPIEGEL: Many experts now fear a "Graccident"—Greece's accidental exit from the euro. If the ECB doesn't agree to your T-Bills, that's exactly what might happen.

Tspiras: I cannot imagine that. People won't risk Europe's disintegration over a T-Bill of almost €1.6 billion.

After the announcement of the bailout referendum on 27 June 2015 speculation rose. That day BBC News reported that "default appears inevitable", though it later removed the online statement. On 29 June 2015 it was announced that Greek banks would remain closed all week, cash withdrawals from banks would be limited to €60 per day, and international money transfers would be limited to urgent pre-approved commercial transfers.

Background

IMF's projection The International Monetary Fund (IMF) acknowledged that its forecasts for the Greek economy had been too optimistic. In its review of Greece's first bailout programme, the IMF stated that the programme had given the eurozone time to build a firewall to protect other vulnerable members, but that macroeconomic outcomes had been worse than expected. In 2012, Greece's unemployment rate reached about 25 percent, compared with an IMF projection of about 15 percent.IMF admits mistakes on Greece bailout BBC News, Business, 5 June 2013 The IMF also conceded that it had underestimated the damage that austerity programmes would do to the Greek economy,IMF concedes it made mistakes on Greece M. Steves and I. Talley, The Wall Street Journal, Europe, 5 June 2013 and that, in relation to Greece's debt, it should have considered debt restructuring earlier.Greece: Staff report on request for stand-by arrangement IMF, Country report No. 10/110, 2010.

The IMF's forecast in the 2010 Stand-By Arrangement projected that Greece would return to real GDP growth after 2011. In practice, the economy continued to contract, and Greek real GDP in 2013 was about 76 percent of its 2008 level.Breaking Greece P. Krugman, The Conscience of a Liberal, The New York Times, 25 June 2015.OECD, National Accounts of OECD Countries: Detailed Tables 2006–2013, Volume 2014/2.

Dynamics

Financial dynamics In mid-May 2012, the financial crisis in Greece and the impossibility of forming a new government after elections led to strong speculation that Greece would leave the eurozone shortly. This phenomenon had already become known as "Grexit".

Economists who favour this approach to solve the Greek debt crisis argue that a default is unavoidable for Greece in the long term, and that a delay in organising an orderly default (by lending Greece more money throughout a few more years) would just wind up hurting EU lenders and neighbouring European countries even more. Fiscal austerity or a euro exit is the alternative to accepting differentiated government bond yields within the Euro Area. If Greece remains in the euro while accepting higher bond yields, reflecting its high government deficit, then high interest rates would dampen demand, raise savings and slow the economy. An improved trade performance and less reliance on foreign capital would be the result.

The implementation of Grexit would have to occur "within days or even hours of the decision being made" due to the high volatility that would result. It would have to be timed at one of the public holidays in Greece.

International law dynamics One US economist has argued that the legal grounds upon which the "troika", composed by the EU Commission, the European Central Bank and the IMF, has pursued the harsh macroeconomic adjustment plans imposed on Greece are shaky, claiming they infringe upon Greece's sovereignty and interfere in the internal affairs of an independent EU nation-state: "the overt infringements on Greek sovereignty we're witnessing today, with EU policy makers now double-checking all national data and carefully 'monitoring' the work of the Greek government sets a dangerous precedent."

He argues that a withdrawal from the Eurozone would give the Greek government more room for maneuver to conduct public policies propitious for long-term growth and social equity.

2012 Plan Z "Plan Z" is the name given to a 2012 plan to enable Greece to withdraw from the eurozone in the event of Greek bank collapse.Peter Spiegel, "Inside Europe's Plan Z", Financial Times, 14 May 2014 It was drawn up in absolute secrecy by small teams totalling approximately two dozen officials at the EU Commission (Brussels), the European Central Bank (Frankfurt) and the IMF (Washington). Those officials were headed by Jörg Asmussen (ECB), Thomas Wieser (Euro working group), Poul Thomsen (IMF) and Marco Buti (European Commission). To prevent premature disclosure no single document was created, no emails were exchanged, and no Greek officials were informed. The plan was based on the 2003 introduction of new dinars into Iraq by the Americans and would have required rebuilding the Greek economy and banking system ab initio, including isolating Greek banks by disconnecting them from the TARGET2 system, closing ATMs, and imposing capital and currency controls.

Implementation The prospect of Greece leaving the euro and dealing with a devalued drachma prompted many people to start withdrawing their euros from the country's banks. In the nine months to March 2012, deposits in Greek banks had already fallen 13% to .

A victory for anti-bailout lawmakers in the 17 June 2012 election would likely trigger an even bigger bank run, said Dimitris Mardas, associate professor of economics at the University of Thessaloniki. Greek authorities, Mardas predicted, would respond by imposing controls on the movement of money for as long as it takes for the panic to subside.

Against this plan, a political initiative, the so-called Menoume Europi was founded in 2012 by students in Oxford University, and it spread among Greek students in other European universities. The first demonstration took place in Athens, Syntagma Square in June 2012 in between two major elections that brought to the country political instability and financial insecurity.

A Grexit, assuming that it coincided with adoption of a new currency, would require preparation, for example with capacity for banknote stamping or printing a stock of new banknotes. However, information leaking out on such preparations might lead to negative dynamic effects, like bank runs. Conversely, leaving the Eurozone, but retaining the Euro as de facto currency, would avoid the practical issues and relieve the country of the burden of its Eurozone responsibilities.