Should Greece Leave the Eurozone?

This article is from our reader Philip S. Wenz.

Will someone explain to me how Greece economic collapse is different than the thousands of Americans who were taken advantage of with predatory loans - then foreclosed on their homes? Isn't that what essentially happened with Greece and the predatory lending practices of the EU? Who really is to blame for this mess..?

I recently read that "Greece would have the option to return to the eurozone, at a new exchange rate…"

And why on earth would they want to do that? Let's say that after five years — and now, probably, eight years — of failed austerity, Greece finally leaves the Eurozone. It then produces and devalues its own currency, and gets on its feet economically. It builds a stable, progressive, growing economy.

What need would it then have for the Euro? And why would it want to risk being sucked back into a system where it has no power over its own economy?

Greece should exit the euro, go bankrupt and proceed as stated in the article. Trying to pay back over 300 billion in loans with this type of austerity is a pipe dream. You cannot pay back loans while shrinking the economy.

The loans were contracted by banks (mostly) who made a bet and lost. This is the market place and they should lose the money they loaned. This might actually build more prudence in banks if rather than bailouts and imposing foolhardy austerity, they actually lost the money the ineptly loaned to an overspending client...

"Until Europe is turned into a federal state — as it should become..."
And why, exactly, is this an important goal? The richness of European culture is its diversity. Absolutely no need to have a United States of Europe. The Euro is a failure so why not accept this?

Sinn has been advocating this from the beginning. The problem is, he also advocated the austerity which now makes a Grexit nearly deadly for the Greeks. Austerity has killed lending, exports and every other economic mechanism needed for the Greeks to compete. Add to that brain drain, massive corruption. While many of Sinn's theories make sense on paper, they don't make sense on the ground. Greece is a failed state and Germany helped it get there.

The best thing would be for Germany to leave the Euro. They artificially inflate the euro making other economies like Greece, Portugal, Spain (well everyone really) uncompetitive. Meanwhile Germany's exports are supported by a currency that is deflated by the lesser economies of Greece, Portugal, Spain (well everyone really). If Germany went back to the Mark, the euro would immediately be worth considerably less, making the lesser economies more productive. Germany would have a much easier time supporting their own currencies than Portugal, Greece, Spain etc. would have in going back to their own. The Euro is a failure, admit and move on. Let the lesser economies band together maybe, but you've got to get the 500lb gorilla out of the room with them. They disrupt everything.

Aside from Paul Krugman's several editorials, the NYTimes "reporting" of the financial crisis in Greece was shallow and EU biased, and contributed to the public's ignorance of what was in Greece's best interest. The NYTimes editorial board and "reporter" staff needs a good boost in intellectual gravitas and responsibility. They are descending to the level of late-show TV entertainment as an errant response to the digital age. Their coverage of Greece is a clear example of this as they made a mockery of Greece's leadership while elevating EU leadership beyond reason. The Sinn and Krugman analytical position was nowhere to be found in the Time's "reporting" leading up to the pitiful capitulation of Greece to EU domination. Ditto Iraq invasion, ditto Libya destruction, ditto Syrian near calamity, ditto Ukraine western aggression, ditto anit-Chinese slant, ditto, ditto, ditto. The NYTimes is increasingly failing us all.

It is pointless and rather frustrating to present such a proposal to the US audience. I got the impression half of the US-reader even totally mix up the bailouts, and it is groundhog day to explain them, that bankers and private investors since the second bailout are no part of this game anymore. The same country, that refuses to grant universal health-care to their own citizen, get's crazy when taxpayer of other countries are reluctant to pay for bad governing of a country, that has fiddled the numbers to hide their generous overspending.

But i can reassure, the mood here in europe is much different than it seems. As much as people don't like austerity, somehow there is understanding, that there are no popular alternatives. When Yanis Varoufakis tried to break the domination of austerity, he received a resounding opposition, and even personal hostility.

From an european point of view i can state, that Varoufakis presented his case very bad. His permanent lecturing about macro-economics wasn't a compensation for a sound fiscal planing. His reluctance to provide any proposals how to fight corruption, tax-evasion and government-overheading reduced him quack in the notion of all other politicians and most citizen. But still he is a celebrity.
 

So here is Hans-Werner Sinn, the german celebrity, no politician, but very influential. You may scorn him, but this is also pointless, because nobody gives the austerians cause a better reason than him.

A commenter in a newspaper wrote:

"...after all, in 1953, or only 8 years after the end of WW Two, Germany's foreign debt was cut by one-half."

Nor did Germany pay the remaining half of its debts, which were ultimately dissolved. (Nor did it pay its WWI debts.)

I wonder how much would the rest of Europe be willing to pay for Greece to simply exit out of the system? I suspect that in certain circles that might be quite a lot especially since they are willing to bail them out for 94 Billion - a permanent solution to an always chronic problem is probably worth a lot more to them.

One of the arguments for no more debt relief has been to keep that as part of a voluntary-exit scheme on hand. I.e. if Greece wants to leave, we are sorry to see it go, but here, because we like you, we forgive a lot of your debt, pay you off with a bunch of bail out cash. Goodbye! Please don't knock on our doors again. Oh and if the IMF wants debt relief they should totally forgive all the debts Greece owes them first.

The problem with Greece has always been the fact that its institutions are not up to the standards of a first world country. Unfortunately it is not clear that by its exit out of the Eurozone it will be able to build these without "super-nanny" EU being on hand. While its economy may get more competitive with a currency devaluation it certainly does not guarantee reforms. Quite frankly if it had the stomach to reform it would not be here in the first place.

Hats off to the EU members for taking up this role.

I agree Greece would do better outside the Euro. How to do that? The how would make all the difference, between being a rescue and being an abuse to a new extreme.

The underlying assumption of this author is wrong. Greek wages and prices were not "above the competitive level." That is not what failed in Greece.

Greece was growing, until the financial crash that came from outside. Greece was handling its debt. Greek wages and prices were competitive, just fine.

What happened came from outside Greece. It was not the doing of the Greeks. It was not a problem with the Greeks.

The "remedy" forced on Greece has made things worse. It has crashed the economy by 25%, so that what was working no longer works.

Yes Greece had issues. It was not a perfect economy, but nowhere is, each with its own issues. In Greece, the wealthy were enriching themselves, as holdover from the dictatorship, as two groups of wealthy elite handed the country back and forth between them for their mutual benefit.

Still, despite them, it was working, until outside forces smashed it. It was growing, and it was able to pay its bills. Even the little guys were doing better, despite the wealthy taking advantage of them.

The Euro has prevented Greece from adjusting to those outside forces. The Euro kept Greece pinned down and vulnerable to be ravaged, and it has been.

But how? Devastating those who were abused before by their own wealthy, blaming them and forcing the price on them, must be avoided.

Grexit is, indeed, the best option for both Greece and its EU/Eurozone partners. This move must be accompanied, in parallel, by mounting initiatives to stimulate the growth of its economy and export potential through private foreign investment, not more public bailouts. Major business opportunities are in tourism, agriculture, food-processing, energy, and software production. But the business environment in Greece has to improve drastically to make such investments prospectively attractive. Greece is ranked 130th in the world according to the 2015 Economic Freedom Index. Improving its attractiveness requires removal of regulatory barriers and strong tax incentives for foreign investment. As importantly, corruption must be eradicated to reduce risks. Matteo Renzi is showing now the feasibility of similar initiatives.

A strategic shift from austerity to growth won’t be easy. A major problem facing Greece: the tens of thousands of small enterprises owned and operated by Greek families accounting for nearly three-quarters of the economy. Such a level of fragmentation negates exploitation of economies of scale and scope essential to competing in the global markets. This very fragmentation of the Greek economy constitutes the strategic opening for potential foreign investors. But Greece must act first to attract them.

Dear NY Times,
thanks for giving Mr. Sinn a chance to write something in your newspaper as an answer to Krugman, Stiglitz.... Until now i thought you are just driving an anti-German campain. But this is a fair move and proves, that there is fairness in journalism.

Well done.

"More important, it would lead other countries to adopt more prudent financing and steer clear of the debt trap that caused the bubble in the first place."

Don't you have this backwards? It was the bubble that caused the debt trap,
not the other way around. And especially culpable in the creation of that bubble was the imprudent lending on the part of German, and other European, banks.

As I understand it when Greece couldn't meet their debt obligations, they asked for a loan and only EU / Germany responded. It came with austerity requirements. Greece accepted. And now Greece needs another loan and neither the US, China, Russia or anybody else if offering any money. For all the talk only EU / Germany is putting their money where their mouth is and they know they will not be fully repaid.
EU / Germany are the heroes not the villains.

Common sense staring you in the face. The euro is not the dollar, the EU is not the U.S., the European Central Bank is not the Federal Reserve, and devaluation is the only long-term solution permitting recovery. All the others prevent it. Why a Professor Finance from the University of Munich has to make this argument and not the EU Commission itself is a complete mystery.

The suggestion of a "temporary" Greek exit from the euro, in my view, is another cynical German ploy. Everyone understands there will be no return once they are out.

And how will the Greeks buy essential food, fuel and medicines from abroad with an almost worthless new drachma, without massive continuing support from the EU?

Two wrongs don't make a right. The Greeks should stay in the euro, More years of austerity are not inevitable if the Germans would relent on their sanctimonious need to punish the Greeks, and instead agree to a pragmatic, carrot-and stick "middle way," in which each step of reform implementation is met by additional debt relief, and additional funding of infrastructure and other investments.

Germany would also do well to follow China's example, and begin moving away from an export-driven economy, by stimulating domestic demand, and with it some modest inflation at home. That would make life oh-so-much easier for all its euro partners.

Before German apologists start responding to this comment with snarky attacks on the U.S., I would remind them that unemployment here is half that in the Eurozone, and that "shooting the messenger" is a diversionary tactic employed by pleaders without a cause.

Greece caused it's own insolvency through tax evasion, bureaucracy, generous retirement and welfare, but the Germans have caused the economic depression by destroying their economy with blunt austerity.

According to World Bank data between 2008 and 2013, the Greek Government expenditures have dropped from 42B to 34B Euros - a 25% reduction in government spending. Tax revenues have dropped 10% from 47.7B to 43.5B - not because of poor tax enforcement, but because German imposed austerity had DESTROYED the Greek economy - a 33% drop in GDP from 242B in 2008 to 182B in 2013.

Did the Greeks need reform to stop tax cheats, reduce waste, and reign in pensions - yes. But austerity should have been selectively applied to area with minimal economic impact in parallel with stimulus in areas that could expand the GDP and tax base.

The Germans were more concerned with moral righteousness and making the bond holders whole than the economic depression imposed on the 27% of unemployed Greeks that can't repay any bond-holder. A profound waste of human capital.

The Greeks may have picked the forbidden apple from the tree, but the Germans were the ones that forced them to eat it.

Greece doesn’t need to exit the euro zone but neither is it in condition to stay as a full-fledged member. To help Greece out of its continuing crisis, the European Central Bank could issue the Greuro, a hybrid currency nominally equivalent in value to the euro. Salaries and pensions in Greece would be paid in this currency. Countervailing market forces would determine its exchange rate, but the European Central bank would agree to accept it for repayment of debt as an equivalent to the euro. Probably the Greuro would suffer devaluation, which would in turn help to revitalize the Greek economy. Lenders and debtor nation would thus share sacrifices in proportion to their responsibility for the present crisis.

 

"What about the solution favored by leftists: more money for Greece?"

That's not what leftists are saying. Most European, British, and American leftists are advocating Greek withdrawal from the Euro. The only difference is that we tend to save our harsher sentiments for German management.

However, it's ridiculous to expect Europe to become "a federal state," just as it is absurd to expect Greece to return to the Eurozone after once leaving. Portugal, Spain, and Italy all have their own mounting problems, and they will draw their own conclusion from observing the Greek exit. The dislocations of a common currency without a fiscal union are becoming too obvious to ignore. A union of leftist and rightist parties advocating exit from the Euro will be an increasingly common feature in European politics.

Germany wants a tight monetary policy with low inflation and a strong Euro because the German economy is one of few in the zone whose currency will inevitably be devalued in the Euro, making their exports more competitive. Hence they run significant trade surpluses inside and outside of the Eurozone. Germany gets what Germany wants, but that policy will have a tendency to starve the economies of less robust countries that need stimulus.

It doesn't really work. It might seem to work when times are good, but hard times expose the contradictions at the heart of the project. Greece will be a test run for the dissolution of the EZ.

Impressive piece. Whether or not you agree with him he didn't beat around the bush, he spoke clearly and plainly and sketched things out with as far as I can see, little ulterior motive. Kind of like sketching out ideas for a working football (soccer) team.

I am confused that "predatory lenders" are cited in the economic Greek tragedy. Greece was not forced into the loans, nor were it implications hidden. Rather, the Greek government when on a multi-year spending spree with full knowledge that their revenue streams were nearly non-existent due to the Greek national pastime, tax evasion.

The villain in the story is the Greek contempt for government and structure, an ironic problem in the "birth place of democracy".

There is no urge to return to the euro, there are other nations like Poland, Czech Republic, Norway, Sweden, Britain and Swiss, who are very comfortable just being member of the EU, but having their own currency.

The offer to be able to return to the euro when the preconditions are met is not a coercion. Too many greeks are still frightened of abandoning the euro is final that they rather endure austerity. A grexit could be a fast detour to become a sound member of the euro again, this is an option, not a threat.

If the Greeks realize, they fare much better with a drachma, it would give the european idealists a blow, but i don"t care for their visions anyway. What matters is, that greece has a viable alternative to austerity, for one thing is for sure, austerity will prevail as long as they are in the euro.

It's nice to see some sense emanating from Germany. I thought Germany was behaving in an exceedingly miserly fashion; after all, in 1953, or only 8 years after the end of WW Two, Germany's foreign debt was cut by one-half.

European unity was and is a laudable goal. However, there is nothing sacred about currency or money, and this economic crisis has shown us that unity is not forged or furthered by artificial, unfeasible, currency amalgamations like the Euro. We should not view a Greek Exit from the Euro as a sign that Greece is no longer a part of Europe; the majestic history of Greece ensures that all of Europe will always be in her debt and under her spell. This author and Paul Krugman may be on different wavelengths ideologically, but their common sense understanding of economics makes them realize that the preponderance of the evidence makes an exit from the Euro best for all parties concerned.

I don't know where people get the idea that Greece offered cradle-to-grave welfare and overly-generous pensions. Yes, there were programs for early retirement from military and civil service after 25, 30 and 35 years, but this is true in most countries. Also, this benefited the government since older, higher-grade workers could be shuffled out in favour of younger workers getting paid €700/month. I lived in Greece for many years, so I know that the pensions and social benefits were a small fraction of those paid out in other European countries and in the US, Australia and Canada. The social health system has never truly worked and supplementary cash payments were usually necessary for basic services. Schools and universities were never adequately funded, which lowered the overall effectiveness and competitiveness of the workforce, especially in the public sector. Indeed Greek wages were never at a similar level to those countries, despite that the Euro raised the cost of living to nearly north European levels. Try living in Athens on €700/per month (or €480/month now, which is the new base wage). I know of Greek Army generals who were being paid about a third of what their NATO counterparts were making and their 35-year pensions are now down to €980/month... Greece has always had its problems and had to deal with corruption and inefficiency, but with the drachma they somehow managed to get along, even in the 90's when Greek bonds were paying double-digit interest rates.

 

 

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