Cameron Bell Greece has almost no exports and its prices for goods and services are outrageous compared to its non-Eurozone neighbors who offer the same quality. A shock in the form of a devalued currency is the reality check Greece needs.
Cameron Bell My understanding is that a Greek default would be catastrophic to the Euro and would therefore precipitate a Greek exit from the Eurozone, but not the European Union. So advocating for a default is to advocate for a Greek return to the drachma. The Economist calls this scenario “frightening” and highlights the risk of contagion, mass bankruptcy, and thousands of broken contracts that would take years to rewrite. (This is why we see policymakers doing everything they can to avoid this option.) Yet I still think the best policy solution is a dose of tough medicine that can signal to Greece that it is time to build a competitive economy.
Cameron Bell The reforms being called for are politically untenable within the country. No one wants their pension cut; no one wants to pay taxes; and no one is willing to work for lower salaries commensurate with similarly weak economies in the region but outside of the Eurozone. Where is the evidence that one more rescue will work? What are the opportunity costs? Would a Greek bailout actually hurt reform efforts underway in the other struggling economies by introducing moral hazard on the state level? Advocating for default is a hard argument to make because, as many of you have mentioned, there are serious consequences for the rest of the global economy.
Cameron Bell A reminder of the current situation: Greece needs €145 billion in aid to meet a bond payment scheduled for March 20. This is €15 billion more than planned for in the October rescue package, and this constitutes the third rescue package in a little over two years. Donor countries and institutions have to continually produce large sums and private creditors are being asked to accept deeper losses. If it seemed like reform efforts in Greece were beginning to take hold, I would be more optimistic that eventually Greece could climb out of the debt cycle. But the necessary austerity measures are fueling the protests in the streets of Athens!