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Tuesday, May 15, 2012

DER SPIEGEL argues that "Greece Can No Longer Delay Euro Zone Exit"

...in the first part of a four part article. Excerpts from Part 1 follow below.  Click on the following links to Part 2 : Reforms Have Ground to a Halt, Part 3 : The Only Way is Down, and Part 4 : Scenarios for a Greek Exit.

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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."

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.

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.

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