In the past week, the country of Greece has announced a bank holiday, signalling that the country is on the brink of a financial crisis. Greece will become the first developed nation to default on an IMF loan. Greece had an outstanding loan of $1.7 billion.
“I confirm that the SDR 1.2 billion repayment (about EUR 1.5 billion) due by Greece to the IMF today has not been received. We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared."
– Gerry Rice, Director of Communications at the International Monetary Fund
If Greece decides to exit the Euro and return to its historical previous currency, the Drachma, it is possible the country will experience severe inflation and possibly even hyperinflation. During their time with the Drachma, Greece
experienced a 6.32X higher price inflation than with the Euro. You might think that returning to the Drachma would give the country access to money printing, yet Yanis Varoufakis, the Greek finance minister, recently disclosed that
the country no longer has the capacity to print money because they rid themselves of their presses before joining the union. Furthermore, the majority of government debt is owed by foreigners and denominated in the Euro, and so it would be unable to pay off its debt through monetary inflation.
