Monday, February 02, 2015

Does Greece need a "Grexit" strategy? Dean Baker thinks so

Dean Baker presents a best case for what could happen if Greece winds up having to exit the eurozone, or Germany forces it out, in Greece needs an exit option Aljazeera America 02/02/2015:

There is no doubt that an exit from the EU will initially lead to enormous disruption to Greece’s economy. Returning to the drachma would not only be associated with a default on government debt, but many private businesses and individuals would also be unable to meet debt payments denominated in euros. But other countries have worked through a similar adjustment, often with remarkable results.

Argentina, for example, broke a tie between its currency and the dollar in 2001. Although there was an immediate period of chaos and sharp economic decline, three years later its economy was 17.2 percent larger than before the devaluation. The countries of East Asia had similar sharp turnarounds following the 1997 East Asian financial crisis, as have several other countries.

There is no guarantee that Greece will be as successful with a return to the drachma, but there are reasons for optimism. First and foremost, the country now has both a primary budget surplus and a trade surplus. The primary budget refers to the national budget without counting interest payments. Greece is now running a primary budget surplus of more than 3 percent of GDP (the equivalent of $500 billion a year in U.S. GDP). This means that if it didn’t have to pay interest on its debt, it would not need to borrow to make ends meet. [my emphasis]
That passage mentions a couple of important things: that Argentina's situation offers lessons for Greece (and also other eurozone periphery countries), and that a release from debt payments would allow major possibilities for Greece's to pursue stimulative policies that could starting lifting the country out of depression.

Argentine commentators are aware of the similarities in their situations, as illustrated by this TV Pública argentina report, V7inter - Grecia con nuevo gobierno renegocia su deuda 01/31/2015:

Greece's situation doesn't exactly duplicate Argentina's, of course. It is similar in that Argentina had linked the value of its peso at a fixed rate to the dollar, so that in effect they didn't control their own currency. And that is similar to countries in the eurozone. And Argentina got caught in 2001 in the same kind of "real devaluation" trap that in which Greece, Ireland, Italy, Spain and Portugal have found themselves.

But Argentina still had its own currency. If Greece has to go back to its own currency, which used to be the drachma, they would have to create a new currency. And in the process they could suffer damaging capital flight and speculation. There are other recent examples of a currency union breaking up, notably that of the former Soviet Union. When the Czech Republic and Slovakia broke into separate countries, Slovakia initially tied its new currency to the Czech Republic's, and Slovakia fairly quickly ran into the "real deflation" problem and finally unlinked its currency. In the case of currency unions, it's true that breaking up is hard to do.

It's safe to assume that officials in Greece, Germany and elsewhere have given some thought to what happens if Greece and other countries leave the eurozone. That doesn't mean than all of them have planned well for it.

Robert Misik looks at the developments with the new Greece government formed last week in Syrizas Schocktherapie für die Euro-Eliten Der Standard 01.02.2015. The text summary notes that Misik discusses of Greece's new Finance Minister, "Yiannis Varoufakis innerhalb einer Woche zum Finanzminister und zum coolen 'Pop-Culture-Hero' und globalen Politstar wurde" ("Yanis Varoufakis has become within a week the Finance Minister and a cool 'pop-culture hero' and global political star").

The video doesn't appear on his YouTube channel yet.

President Obama weighed in on Greece's situation on Fareed Zakaria's GPS show on CNN, Obama on austerity programs 01/31/2015:

This is classic Obama, kinda-sorta saying the right thing about the destructive effects of austerity in Greece in particular. But couching it in Herbert Hoover/Angela Merkel praise for "fiscal prudence" and "structural reforms," the latter being the Merkel buzzword for slashing public services, deregulation of business, reducing wages and salaries, weakening unions, etc. He starts off saying that need a growth strategy so that countries like Greece can pay off their debts and reduce their deficits. (!!!!) Greece is actually running a primary surplus (before debt payments), has an unsustainable level of debt payments, and is in the middle of a depression with general unemployment stuck at the 25% range and youth unemployment in the 60% range. And, of course, he invokes the Holy Grail of Merkelnomics, saying that Greece needs to compete better in world markets. And, of course, he looks forward to "compromise on all sides." In the context of Greece's situation right now, Obama's position is hard to distinguish from Merkel's.

I'm sure Obama wants to see growth in the eurozone. In theory, so does everybody. But Greece's new Finance Minister Varoufakis is very familiar with the result of Obama's Bipartisanship with the well-meaning [cough, choke] Republicans in Congress. In their first days in office, the new Greek government has already told the "Troika," the consortium of the EU, the ECB and the IMF that has been issuing the austerity orders to Greece to pack their stuff and leave Athens, because Greece ain't doing the austerity dance any more. So they're leaving, and the EU Commission President Jean-Claude Juncker (an Angie-bot), is reportedly going to dissolve it altogether. (The "Troika" was really a figleaf to pretend it wasn't the German government dictating Greek economic policies in detail.) That sounds like the right kind of "compromise on all sides": we stop practicing stupid and destructive Herbert Hoover economics, and you stop telling us to.

Here's a report on the debt negotiations, Yanis Varoufakis, Finance Minister of Greece Offers Debt Swap Options to the Europeans The Real News 02/02/2015. But The Real News' YouTube channel now seems to be marking at least some of its recent videos, "Embedding disabled by request." The transcript is available at The Real News website. What's up with their not allowing embedding to Blogger now?

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