"Would we wake one morning to an announcement that Greece had returned to the drachma?" yes. But not unexpectedly.
"What would conditions in Greece be like over the next several years (decades?)." That depends upon the Greeks. If they can see that default means they have regained their own destiny, and all future effort will be for their benefit rather than that of foreign banks, then it will be very short term, maybe even only six months of pain followed by a reasonable recovery. Similar to Iceland. If they want to keep sitting around all day whinging that there are no more EU handouts instead of getting stuck in to rebuilding Greece, who cares?
"Have those people with money in Greece already moved it out?" Absolutely! Swiss banks and Hotel deposit boxes are stuffed with Euros (the banks are full). Likewise some human capital has gone too. For Greece to recover, it is essential that the money and the people must be persuaded to return - after all, the ones who have left in search of work are the hardworking ones ...
Greece doesn't have to produce anything - it is the premier tourist destination. Keep fishing, producing Ouzo and Retsina, and they will come!
European banks have the biggest direct exposure to Greek debt, plus the ECB. Credit markets probably will freeze up even more than they are atm. As for derivatives, nobody knows - such is the nature of THAT beast.
Touching on Martis' comments - the Greeks will not need to print masses of Drachma. They will default, which means the debts are not payable - need to check on the terms of the bonds here. Most of them are under Greek law, which makes default easy. Most of Portugal's bonds are under English law, making default much more painful. They will only need to print as many Drachma as they need.
People will be trading with Greece almost immediately, and lending them money within six months. Such is the greedy nature of people. It WILL be different next tie round :-)
