Tuesday, June 21, 2011

Will Greece Leave the Euro?

With even intellectual heavyweights like Boris Johnson suggesting Greece should leave the Euro, what are the economic arguments for and against?

I wrote a post here on some of the pros and cons of Greece leaving.

European political leaders seem to discount the possibility of anyone leaving the Euro, yet the head of Germany's prestigious think-tank IFO Institute, Hans-Werner Sinn, predicted that further austerity would be self-defeating and leaving the Euro could be the least bad option.

He said "The policy of forced 'internal devaluation,' deflation and depression could risk driving Greece to the edge of civil war,"

The scope of the problem can be seen in the size of Greece's current account deficit and unemployment

Whether Greece will leave the Euro is very hard to answer. The Greek government and European leaders seem to discount it as an option, but it is hard to see the current approach creating anything other than higher unemployment and greater civil rest. To fight for Euro survival is to fight for the wrong thing. Even if they were to survive this current crisis (and it is hard to see how) the fundamental problems of the Euro remain. It just doesn't work for a country who has different productivity rates, different levels of borrowing and different rates of growth. Also, the Eurozone has shown it is not an optimal currency zone. The unemployed in Greece can't easily move to other areas of the Euro where vacancies are available.

Greece should leave Euro, default on some debt and concentrate on reducing unemployment and creating economic growth.

1 comment:

Dazzla said...

"...intellectual heavyweights like Boris Johnson..."


This is a joke, right?