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Eurozone minus Greece: The untried plan

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People take to the streets of Athens and rise up against proposed austerity measures on February 12, 2012. Greece's economic problems have put a strain on the rest of Europe. UPI/Giorgos Moutafis | <a href="/News_Photos/lp/0684a464f819ada66a95035d5c21d4c6/" target="_blank">License Photo</a>
People take to the streets of Athens and rise up against proposed austerity measures on February 12, 2012. Greece's economic problems have put a strain on the rest of Europe. UPI/Giorgos Moutafis | License Photo

BRUSSELS, May 17 (UPI) -- Financial analysts say the unprecedented move of Greece leaving the eurozone would be a disruptive and expensive process.

Greece giving up the euro and returning to using its former sovereign currency, the drachma, would be "extremely expensive," said International Monetary Fund Director Christine Lagarde.

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A move that dramatic hinges on the legal challenge of finding an exit from the eurozone in the first place. Some say there is no legal pathway for doing so.

"It's impossible to leave the eurozone. One can only leave the European Union," Austrian Finance Minister Maria Fekter said Monday.

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Part of the problem leaders anticipate is Greece's eventual return to the eurozone. But joining the eurozone is already carefully laid out, while exiting is not, experts said.

"Greece would have to apply for re-accession and we would hold accession talks and look very closely" at the situation, Fekter said.

That's down the road. Leaders are now worried that creating an easy exit from the eurozone might tempt other nations to follow suit, The Wall Street Journal reported Thursday.

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The path should be neither too easy nor too hard, analysts say.

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"It would be in the interest of the others to make sure that things aren't absolutely dreadful," said Roger Bootle, managing director of Capital Economics in London, who has written a 150-page guideline for a possible departure for Greece.

The plan could start with a one-to-one swap of euros to drachmas, then letting the open market sort out the value differences.

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The drachma, some say, would quickly readjust, losing about 40 percent of its value. That would make foreign imports in Greece prohibitively expensive, while trimming the cost of foreigners vacationing in Greece dramatically.

In other words, it would quickly make Greece competitive again.

"At a stroke, Greece can lower its real exchange rate and therefore be more competitive," Bootle said.

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