Greece: What would it look like outside the euro?

Greece is caught in a perpetual cycle, reliant on loans to repay the interest on existing loans – and the simple solution, writing the loans off, is rejected by the almost ideological insistence by Northern Europeans that countries must repay their debts.

As the Greek government campaigns for a 'no' vote in this weekend's referendum and looks almost certain to default on an IMF loan tonight, an exit from the euro looks increasingly likely.

But going it alone would be very costly for ordinary Greek people.

Once it left, money would be in very short supply: the European Central Bank would withdraw an €89 billion lifeline to Greece’s private banks, very possibly sending them into insolvency.

Tax revenues would evaporate as citizens become unable or unwilling to pay, leaving the government with little to pay its bills.

Athens could issue a 'scrip' currency – IOU notes – to pay its employees, pensioners and suppliers. This would then filter through the economy as an unofficial currency, a precursor to a new drachma, as a new Greek currency might be called.

Even if the Greek government had been planning a euro exit from the moment it took power in January, there would be a painful wait before new banknotes and coins appeared.

Giesecke and Devrient, a German company which prints bank notes, says it takes between a year and a year-and-a-half to set up a currency from scratch.

A new drachma would also be much less valuable than the euro. It might initially be issued at 'parity' with one drachma worth one euro but analysts at Credit Agricole and ING reckon it would quickly lose between 40 and 50 per cent of its value.