Greece Part II

Ok, so Greece should leave the euro. My position on that has not changed in the five years. My love of German sausages and my dislike of Angela Merkel also remains the same.

What has changed is that Europe’s leaders now don’t have any time to sort out this impending crisis. Five years ago they did, and could have rationally – as I argued then – allowed Greece to leave the euro-block in an orderly fashion, with the view to bringing it back in at some later date. Like when Greek politicians were mature and honest enough to play the euro game (let us not forget, in case anyone has, that Greece should not have been allowed in in the first place because they deliberately and not very elegantly massaged their figures to comply with the Maastricht criteria – both Athens and Brussels should be slapped on the wrist for that).

The panic-stricken cry to counter this argument has always been one of: “contagion!” If Greece is allowed to leave, then Spain and Portugal would shortly follow, possibly even Italy.

That’s quite possibly the case now. It wasn’t five years ago. Five years ago, European leaders could have chosen to draw up a firm plan that would allow Greece to structure an exit from the euro, get its house in order and – should conditions so permit – return. The banking union that European leaders were so hell-bent on creating could then have been applied to the remaining members of the Eurozone, including Spain and Portugal, and thus prevented contagion spreading. Greece was too far gone.

The case for leaving the euro is clear in its simplisticity: the Greek currency – which will become the drachma – will devalue and competitiveness will return to the country. Because the euro-tragedy isn’t simply one of dodgy Greeks and tax-dodging. That’s only half the story. It is one of a country robbed off its competiveness by being tied to a ludicrous half-baked financial experiment.

People may argue that, should it leave the euro-zone, Greece would become a pariah state, shunned by investors and shut out of the world’s financial markets. But investors have short-term memories and, once Greece’s house was in order, they would return. Probably in droves. The pain would be short-lived.

There is of course a precedent for this. Argentina defaulted on its debt in 2001 and was forced to abandon its peg with the dollar (the separate 2014 default of Argentinian debt is quite different and doesn’t have a place in this blog entry). True, the short-term pain was acute: businesses went bankrupt and there was widespread capital flight. But quite soon competitiveness returned and the country actually started to do rather well, growing at enviable levels (an average of 9% a year between 2003 and 2008).

Of course, I don’t think Greece will leave the Eurozone. It’s going to be touch and go, but eventually Angela Merkel and her counterpart Alexis Tsipras will trump their respective finance ministers, who have been spitting venom at one another. What did IMF boss Christine Lagarde say a few days ago – the talks needed “the adults in the room”?

From a very early age, one starts to understand that the adults don’t always know best.


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