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In the past two years, many taboos concerning the functioning of the euro area have been denied. Among them was that the IMF can not interfere with the affairs of the euro zone or that economically powerful countries in the union can not finance their weaker counterparts in the south. Recently, it became clear that the taboo "it is not possible a Member State to leave the euro area" is about to fall too. Not only such a scenario is considered for Greece, but it is already knocking on its door apparently. The high-sounding statements from Brussels that "we will not allow Greece to default", "Greece's leaving the euro area is unthinkable", "Greece will have a positive economic growth in 2012 "(ha!) fell tones down. The Austrian Finance Minister Maria Fekter was even heard to say ten days ago that if the rescue of Greece will be expensive, it would be better let it go bankrupt.  

Now the default of the Mediterranean country is considered certain and three different scenarios for the debt crisis in Greece are considered in the public space. All three options would dramatically change the socio-economic structure of Greece and will have a direct impact on wages, pensions, social policy, banking, employment, trade and entrepreneurship in the country.

The first scenario provides a partial debt restructuring, "partial default" with the involvement of private owners of Greek government bonds. This mechanism has been enforced to a certain degree following the decisions of the summit on July 21 this year and currently is voluntary. However, there are talks that Brussels considers the options of resorting to a 50% haircut of the foreign debt in order to reduce the credit burden on the country and to begin the actual recovery of the local economy.

Ø In this case, it is expected that creditors will continue to require a reduction in minimum wages and pensions by direct cuts or indirectly by eliminating the minimum tax-free income. Overall, the public and private sectors in this case are expected to decline by about 20%. Following the austerity plan, the minimum annual tax-free income reached € 8 000 compared with € 12,000 from the period before the deepening of the crisis. Currently, the Ministry of Finance is examining the options to bring it down to € 5 000, which is lower than the statistically estimated poverty line. According to recent data, it is around € 6,200 per year.

Ø Under these conditions, deposits in the country will not be threatened and bank losses from the partial haircut of the debt on the Greek government bonds will be covered as well as the dramatic outcomes. However, while no security in the recovery process of the Greek economy is felt, the citizens will continue to doubt the future development of the crisis and the deposits will continue to outflow to foreign banks.

Ø Loans in case of partial haircut of the Greek debt will not be flourishing either. Interest rates will rise if the number of debtors unable to pay their loans increases. Loans will be unaffordable for most people due to high prices and low liquidity. The banking system will reform and priority will be given to mergers and consolidation of banks. Liquidity difficulties remain, because the capital markets will remain closed for the Greek financial institutions, and the main occupation of the banks will be the management of "bad loans" or those in the payment of which there are difficulties.

Ø In entrepreneurship, a further drop in turnover is expected because consumption will continue to decline, which will inevitably lead to a decline in the tax revenue. Many companies are expected to stop operating under these difficult economic conditions. Only the companies complying with the purchasing power of consumers and regularly paying their obligations to the state will continue to operate.  

Ø Social policy in Greece will narrow significantly and the citizens themselves will have to cover most of the previously free medicines and health services, and the lists of citizens entitled to social benefits will be revised.

Ø Greek exports will turn to new booming markets interested in local goods and their prices will be more competitive because the labour costs in the country decline.

Ø The partial default will help employment in the country in no way. It will inevitably lead to increased recession, thus deepening unemployment. The only alternative to create new jobs is considered the enforcement of the EU funds under the National Strategic Development Framework. They are an interest-free way to finance companies to provide new positions in the labour market and to allow the local economy take a breath.

The second option for the development of the Greek debt crisis being considered is controlled default, in which Greece announces suspension of payments to foreign creditors, but remains within the euro zone.

Ø Since Greece is not able to give a penny to its external creditors, there comes a time the salaries and pensions in the country to catch up with the productivity of the country. All allowances will be cut and the wages in the public and private sectors will get even. The wages will drop by 40% at least and the Greek media have noted that the salaries of new entrants to the labour market will be equal to the levels in other Balkan countries, apparently referring to Bulgaria or about € 300 per month.

Ø Banks liquidity will be at risk because the Greek government bonds will undergo a dramatic devaluation. Deposits will be drawn and the survival of financial institutions will directly depend on their ingenuity and flexibility.

Ø As a result of the complete financial collapse, bank liquidity will disappear and a very large number of loans will not be served. Banks will 'hang' not only due to the haircut of the value of Greek government bonds, but also due to the difficulties citizens and companies experience in paying their obligations to them.

Ø The banking system will disintegrate if the European institutions do not throw some kind of life-saving belt. Nationalization of banks could be necessary while the system is strengthening but most importantly, the state will remain in the euro zone and deposits will not be impaired.

Ø Business will suffer much. Thousands of companies are expected to go bankrupt for a very short period of time and surviving firms will rely on the low price of their products due to the general devaluation of life in the country. Indebted firms will not be able to maneuver. Banks will resort to confiscations and seizures if debtors are not able to meet their obligations. Other companies that do not have obligations to financial institutions but need funding will also face a dead end, because banks will not be able to give loans.

Ø Social policy will be reduced to a minimum. Social benefits for the majority of the insured will be reduced significantly and the benefits for the disabled and poor will no longer be cut off to rescue the budget. Health funds will not cover research and other services and drugs will not be covered by social funds.

Ø The impasse in domestic economic environment of the country will cause the surviving firms to seek opportunities for realization outside the country, which is expected to lead to increase in exports. Opportunities for support that Europe will offer the Greek banking system will be crucial.

Ø In all this drama, unemployment will be record high, average wages will fall seriously, and competition for one job will rise significantly.

The third option for the development of the Greek crisis considers the most dangerous but still possible scenario that Greece will not only default but will leave the euro zone. The era of the new drachma scares entrepreneurs as well as ordinary citizens.

Ø Suspension of payments will have a direct impact on pensions and salaries in public administration and a large number of government enterprises and organizations are expected to freeze the payments to employees, suppliers and creditors for a while. The lack of liquidity will also freeze the consumption of basic goods and products and in general, the ability to pay salaries.

Ø The financial sector in Greece will bear the worst impact of abandoning the euro and a series of failures will follow. Citizens will try to export their deposits, leading to the final collapse of the banking system. The return of the drachma will reduce significantly the amount of bank deposits due to the expected devaluation of money.

Ø The banks and their operation known so far will remain a distant memory. Long after the stabilization from the default shock, the banks will begin lending under very difficult conditions similar to those known 30-40 years ago. Small loans only under very low risk conditions will be given to companies and corporations will have to avail significant equity. In mortgage lending, banks will provide not more than 20% -30% of the total value of the property and the remainder must come from citizens’ personal savings.

Ø The combination of state bankruptcy and leaving the euro area will certainly be disastrous for the Greek banking system. The only way out for banks is to be nationalized, reformed and strengthened with additional funds from alternative sources of funding. Even if extreme actions are introduced such as restrictions in capital movement, which should prevent mass drawing of deposits, will not help solve the problem alone. Most likely, the state will put them under its wing and those for which there is no room will fail immediately.

Ø Abandoning the euro will immediately lead to the closure of thousands of small and large companies. This process will be a problem for big companies, mainly in trade, industry and services sectors. The reason is the dramatic depreciation of the purchasing power of households and the sharp increase in prices and interest rates.

Ø Without the euro and damaged entrepreneurship, new legions of unemployed threaten to fill Greece. Strong shocks and fiscal instability, which the recession will bring, are likely to alienate any potential investors able to open new companies and new jobs.

Ø The social policy in the default scenario with the new drachma will be void. Pensions and social security will have to be reduced to sustainable levels. Given that today Greece is lacking € 10 billion at least to align costs and revenues in its budget, their value will have to drop to double digits. Health insurance will also be drastically reduced so that it can fit within the capabilities of a shrinking budget.

Ø Exports will be the only sector benefiting because devalued drachma will make the prices of products produced in Greece more attractive. However, economic analysts of the Greek domestic market estimate that the local economy can not keep the benefits of devaluation for more than two years. In addition, representatives of the real business shared exclusively for GRReporter, that Greece has neither production big enough, nor large produce with high added value to substantially benefit from the devaluation of the currency.