Time to Admit Defeat: Greece Can No Longer Delay Euro Zone Exit, part 1

Published on Spiegel Online International, May 14, 2012.

After Greek voters rejected austerity in last week’s election, plunging the country into a political crisis, Europe has been searching for a Plan B for Greece. It’s time to admit that the EU/IMF rescue plan has failed. Greece’s best hopes now lie in a return to the drachma … //

… Turning Point:  

  • Two years after the government in Athens requested the first emergency loans in Brussels, the European debt crisis is reaching a turning point. Europe and the international community pumped about €240 billion ($312 billion) into the Balkan nation, government employees were let go, pensions were slashed and a series of restructuring programs were approved.
  • But even though the country is virtually being governed by the European Commission and the IMF, Greece’s debts are higher than ever and the recession is worsening. As the political situation becomes increasingly chaotic, new elections seem all the more likely.
  • At the Chancellery in Berlin, the television images from Athens now remind Merkel’s advisers of conditions in the ill-fated Weimar Republic of 1919-1933. Back then, the Germans perceived the Treaty of Versailles as a supposed “disgrace.” Now, the Greeks feel the same way about the austerity measures imposed by Brussels. And, as in the 1920s in Germany, the situation in Greece today benefits fringe parties on both the left and the right. The country’s political system is unraveling, and some advisers even fear that the tense situation could lead to a military coup.
  • Greece has been in intensive care for years, but the patient, instead of recovering, is just getting sicker and sicker. In a confidential report, which SPIEGEL has seen, experts from the IMF arrive at a devastating verdict. The country, they write, has only “a small industrial base” and is characterized by “structural incrustations” and an “excessively large role of the public sector.”

In Greece’s Best Interest:

  • It’s time to rethink the treatment. The Greeks were never ready for the monetary union, and they still aren’t ready today. The attempt to retroactively bring the country up to speed through reforms has failed.
  • No one can force the Greeks to give up the euro. And yet it is now clear that withdrawal would also be in the country’s best interest.
  • It isn’t a matter of abandoning the Greeks. Greece is and remains an important part of Europe. A Greek withdrawal from the euro will have serious social, political and economic consequences — mostly for the Greeks, but also for the rest of Europe. The continent’s solidarity is not tied to the euro, which is why other European countries will still have to support Greece with massive amounts of money.
  • But only a Greek withdrawal from the euro zone will give the country a chance to get back on its feet in the long term. The Greeks would have their own currency once again, which they could then devalue, making imports more expensive and exports cheaper. As a result, say American economist Kenneth Rogoff and others, the Greek economy could become competitive again.
  • At the same time, a Greek exit from the euro would send a strong message to other financially ailing countries, namely that Europe cannot be blackmailed. Populist politician Tsipras is merely expressing views that are already widespread within large segments of the Athens establishment, namely that the Europeans will ultimately give in and pay up, because they fear a Greek bankruptcy as much as people in the Middle Ages feared the Black Death.

Regaining Dignity:

  • If the euro-zone countries do give in, the pressure for reform will also decline in the other crisis-ridden countries. If that happens, their debts will continue to rise, investors will flee from the euro and the entire currency union could break apart.
  • There are no provisions in the regulations of the monetary union for the withdrawal of a member state, and the euro partners cannot force a member to withdraw. But what else can the Greeks do if the Europeans remain truly adamant and insist that Greece satisfy all conditions attached to further aid?
  • In the end, a Greek withdrawal could only be the result of negotiations, prompted by the realization that it would enable the country to regain its national dignity. If Athens clung to the euro at all costs, it would remain dependent on the international community for decades to come. In contrast, regaining its own currency would enable the country to decide on its own fate.

(full text).

Part 2: Reforms Have Ground to a Halt;
Part 3: The Only Way Is Down;
Part 4: Scenarios for a Greek Exit;

Links:

The Drama of the Greek Elections, on ZNet, by Nikos Raptis, May 12, 2012;

Jobs, growth and unemployment in Greece and Turkey, May 14, 2012;

Germany’s Social Democrats Return to Relevancy, May 14, 2012;

USA employment and unemployment levels – 5 graphs, May 14, 2012;

Savings vs. Stimulus: Can Merkel Teach Hollande Austerity? May 7, 2012;

a video in german (partially subtitled in english) about minimal revenu: Grundeinkommen – ein Kulturimpuls, 98.46 min: vous cliquez sur le bouton (cc) de couleur rouge et vous sélectionnez une langue.

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