They won't follow Capt. Germany's (self-serving) rules, so they'll be kicked off the euro boat. Right now some might imagine that life will go on as before, but the simple physics of buoyancy will mean they'll have to start swimming eventually.

But... there's nothing wrong with swimming! Sure, the drachma will plummet against the euro, dollar, etc. So no one will be able to afford an iPhone. But their factories, farmers, and fisherman will be ideally placed to produce for and export to the rest of Europe, because they'll be selling cheap. They'll issue bonds denominated in drachma, and sure those will have to yield more than euro-denominated bonds in the short term, but that won't last forever.

When entitlements are denominated in drachma as well, they don't have to borrow anything to pay for them. (If they issue bonds for the purpose rather than just printing money, that's more honest but it doesn't change anything.) Entitlement ppp value just naturally drops and rises with that of their national currency. So, it will hurt at first, but after exporters start ramping up it will get better.

Greece doesn't need the euro, the euro doesn't need Greece, and the Grexit won't turn Greece into the Congo.

The problem is that Greece imports about 50% of their food (and several other goods), so the consequences of drachma are going to go way above expensive iPhones - the food prices will surge, hurting the poorest the most.

Moreover, for Greece to be a viable destination for export markets, they will need to place significant penalties on importing anything for consumption at all. Of course, rising food cost is more alarming than high import duties but it seems that taxes on import for consumption are very likely.

The rhetoric against austerity seems to be that we don't want to hurt the people (especially the economically disadvantaged) but I don't see a bright future in the near-term whichever way the Greeks vote. (I know, this is such a terrible thing to say. Good thing I am not in politics.)

Wat? Why would they care to be "a viable destination for export markets"? Why would they care whether there are still some rich folks around who want to buy iPhones? Things like this make me wonder where people got their economics education. I hope I really misunderstanding something here.

Yes high food prices are a problem but without tyrannical corruption like we see in Egypt this problem fixes itself over time.

"Austerity" seems like a red herring to me. The Germans were only too happy about Greek entitlements when they were driving Greek borrowing. Now that they're shutting off the tap (and why now rather than five years ago?), the Greeks themselves will figure out how to distribute the food. I'm sure they'll come up with something, and that plan will have come from Athens rather than Brussels or Frankfurt.

Sorry, I mean export-oriented industries. I apologize for the lack of clarity in my expression.

Yep, exactly.

Also much of anger on the street has been due to lower living standards (euphemistically referred to "internal devaluation") So a true devaluation via an independent drachma won't go over well either.

Of course, the rich keep their money far away from Greece. It's the masses who will suffer.

Worse, any political instability will cause more problems for their critical tourism industry.

This is going to take a looong time because greece is heavily de-industrialized, (e.g. imports ~80% of meat). But i agree it's inevitable.

Next month might be the best time to visit Greece and have cheap hollydays..

So, right now Greece is living beyond what it can sustain. To go forward Greece need to be both more productive and cut its standard of living somewhat. Unfortunately fixing this in a straightforward way is hard. You have a lot of confusion and bargaining around who has to experience pain and it probably won't be distributed evenly if left to itself. And because of sticky wages/nominal loss aversion efforts to reduce people's pay in nominal terms tends to cause unemployment[1] which means that the pain in even worse.

Enter inflation. It sucks, obviously, but it's a great way to spread the pain around evenly between workers, pensioners, and creditors. And it doesn't cause unemployment. It causes a bit of additional pain through things like menu costs but that's small potatoes compared to everything else happening.

Of course this is all presupposing a carefully calibrated monetary policy. It worked great for Iceland but I'm not sure I'd trust the current crop of Greek politicians not to give into the temptation to print themselves out of debt. That way lies hyperinflation.

EDIT: I tend to think it would be good if the Euro zone could be dissolved somehow and it would probably be good for Greece in the long term to leave. However, I'm not at all convinced that in practice the "no" vote will work out well for Greece or anybody else over the next decade or so.

[1]http://econlog.econlib.org/archives/2013/09/why_dont_wages.h...

The real Greek problem is not really government debt itself, but the private Greek economy. Even if all government debt was pardoned, straight up, they'd still be in trouble. The Greek government might have a lot of debt, but most of its obligations are not to servicing said debt, but to keep services running internally, and most of those expenses are paid to Greeks. If Greece had its own currency, inflating away some of those expenses becomes a viable strategy. Also, devaluing a currency means easier exports, more tourism, and more pressure to use products made at home, which means less money leaving the country.

All of those tools are used in countries with their own currency all the time. Monetary policies change to match the health of the economy. But in the Eurozone, monetary policy did not match what Greece needed, neither in their boom, or in their bust. Greece should have never, ever, joined the Euro, given how different their economy is from Germany. Unified monetary policy without a fiscal union doesn't make any sense.

The debate among economists is not whether Greece should have joined the Euro, but now that it's in, and in dire straits, if the very high cost of leaving the Euro is worth the advantages, or it's better to suffer yet a second consecutive bad decade trying to become competitive with Germany.

The Greek government has recently run a primary surplus. This means they would _not_ be in trouble if all government debt was pardoned.