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6/29/15

Grexit: What might it mean for the US? 3 things to consider

Over time, a Greek exit could impose significant economic and geopolitical costs on the United States. This could occur through the following three channels. Again, from AEI’s Desmond Lachman:

1.) In the immediate aftermath of a Greek exit, one must expect a significant further depreciation of the Euro as the ECB took more forceful measure to prop up the European periphery and as investors fled to the safety of the dollar. This would have the effect of causing a further effective appreciation of the dollar that would come on top of a 15% such appreciation over the past year. As the Federal Reserve has noted, a strong dollar appreciation could constitute a significant headwind to the US economic recovery and could exert significant downward pressure on US headline inflation.

Lachman Grexit and US dollar 6-29-15 chart 1

2.) Any eventual spread of the Eurozone debt crisis to other countries in the European periphery, like Italy, Portugal, and Spain, could roil global financial markets and dent European household and investor confidence. This would be bound to impact the US economic recovery considering how integrated is the global financial system and how important the European economy is to US trade.

3.) Should a Greek exit lead both to a souring of European-Greek relations and to the further erosion of Greek political stability, one could see a failed Greek state increasingly coming into the Russian orbit. Already the Syriza government is actively engaged with Moscow about the construction of a Russian gas-pipeline through Greece despite the US Administration’s objections. A deepening of the Greek economic crisis is all too likely to bring Athens and Moscow closer together.



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