It’s time to let Greece go
Adding political mayhem to economic instability, Greece has dominated the news once again in recent weeks.
The only positive thing is that Greek democratic institutions appear to be working well, and they have not been threatened by the crisis. As a result, Greece’s fate will be decided by the majority of its citizens.
Inclusion in the eurozone provided Greek governments with an unprecedented access to credit at uncharacteristically low interest rates. The elected Greek governments decided to go on a shopping spree, and eventually it became apparent that Greece wouldn’t be able to pay its bills.
You might think that the Greeks will blame themselves for this overindulgence and realize that something will need to give for the accumulated debt to be paid. Not a chance. Conspiracy theories abound, but we very seldom hear about the root of the problem. Greece is a country where worker productivity is extremely low, where labor costs are high and where citizens expect their government to provide benefits that are beyond the country’s means.
While the narrative of the debate has been in terms of “austerity versus growth,” it is important to realize that the Greeks don’t just reject austerity. They fundamentally reject reform. First and foremost a Balkan nation, the Greeks have always been skeptical of markets. The majority of Greeks appear to believe that they are victims of the international financial system, of German hegemony and of unfair treatment. Instead of a more flexible labor market, Greeks would like to see government-related employment rise. The so-called “anti-austerity” parties gained popularity by declaring their support for all kinds of benefits necessary for “human dignity” — benefits that Greece can simply not afford.
Why, then, is Europe so reluctant to see Greece leave the eurozone? One reason relates to the fear of contagion of the crisis to the other debt-ridden European Union (EU) countries. Yet another reason is not economic, but emotional. It’s hard for non-Europeans to realize the symbolic significance of the euro project for Europe. In the absence of a common language, the common currency provides a symbol of unity on a continent where most neighboring countries have been historically linked through conflict. To put this project at risk is considered unthinkable. Yet, a threshold has been reached where Greece’s stay in the eurozone puts the euro project at more risk than its exit would. Europe cannot afford to have Greece hold it hostage any longer, and German Angela Chancellor Merkel has taken the correct stance in declaring the terms of the bailout nonnegotiable.
Should Greek elections bring to power a coalition that decides to reject the previous acceptance of these measures, Greece should be forced to exit the eurozone and all possible support should turn instead to the remaining countries that face serious fiscal challenges. Greece is a special case, a country that should never have entered the eurozone in the first place, and the European Union will do well to emphasize that. Indeed, there are some promising signs that other EU periphery countries are far more willing than Greece to embrace reform.
What will exit from the euro mean for Greece? It will be very bad news indeed. Some have argued that Greece will be able to artificially boost its exports through weakening its new national currency, but this is unlikely to happen at a level that would make a difference. Greece’s economy is extremely uncompetitive and, unlike Argentina (which devalued its currency and defaulted on its debt in 2002), Greece does not have a strong export tradition. Several banks will fail, and there are already some signs that the financial system will be subject to tremendous strain, and a possible collapse. Imports, including those related to energy use, will become unaffordable, and the standards of living will drop to a point where social unrest might be inevitable. It will be a rough and highly uncertain path for the small nation, but one that its citizens seem to have chosen for themselves.
What an irony that the nation located where democracy was invented is one election away from democratically choosing to self-destruct.
Ted Temzelides, Ph.D., is a professor of economics and a Baker Institute Rice scholar. He has consulted for the Federal Reserve as well as the European Central Bank. His research concentrates on macroeconomics and energy economics; he currently studies the effect of research and development in renewable energy sources on economic growth and the design of emissions trading mechanisms.
http://blog.chron.com/bakerblog/2012/05/its-time-to-let-greece-go/
wow a greek is another anti greek...
regards
from far away on the other side of the planet...
...well didn't cut muster...better luck next time...
