Debate Club

A Greek Exit From the Euro Would Lead to Chaos

By SHARE

A few weeks ago there was a wild rumor that Greece's debt crisis had been dealt with. The hope was that with enough debt relief and a "managed" default, Europe had bought time for global growth to lift the Greek economy, and Greek politicians would wring the country through massive austerity. This was a misread of the strength of global economic recovery, Greek voters, and financial markets.

Greek voters made it clear they don't see the benefits of austerity, and believe Germany and the rest of Europe is punishing them for their government's mistakes. The French and Dutch, and even parts of Germany, seem to feel the same way and have thrown out their governments. Interest rates on debt have spiked and markets have tanked. This has sparked renewed hope that Greece's exit can stanch the bleeding.

[See a collection of political cartoons on the European debt crisis.]

The argument for a euro exit runs basically as follows:

  • Greece's economy has structural problems that will kill growth absent a flexible currency.
  • Toughness from the European Union, International Monetary Fund, and European Central Bank will force reforms and leniency, allowing Greek politicians to dither.
  • Contagion effects for the rest of Europe have changed, so a Greek exit will no longer force Spain and Italy into the same position.

This is another misread. If Greece leaves the euro the costs of using its own currency will push the country into chaos. Banks will fail, businesses will face massive euro-denominated debts they'll have to pay with a nearly worthless drachma, and the costs of basic necessities will skyrocket. Far from solving the problem, Europe will have a failed state on its hands. Markets will know this, and will immediately turn on the other weak economies. The failure of Europe will be close behind.

[See pictures of the EU in crisis.]

The solution, much like the root problem, is political. Europeans must make a bold choice to commit entirely to European integration. Put somewhat over-simply, Germany must recognize it hugely benefits from a single market and pay far more to keep it. That will include direct financial support as well as measures to rebalance growth within Europe. Doing so will soften Greek anger at being cast as failed Europeans, and reassure them they have a future in Europe. Greeks must then unequivocally support a responsible government, rather than acting out their frustrations in the voting booth.

The road back to growth in Europe, as in the United States, will be long, difficult, and largely unglamorous. But shedding Greece and hoping no one understands the true implications is just more wishful thinking.

Alexei Monsarrat

About Alexei Monsarrat Director of the Atlantic Council Global Business & Economics Program

Tags
Greece
euro
European Union

Other Arguments

#1
33 Pts
A Return to the Drachma Would Be Difficult, Damaging, and Dangerous

No – A Return to the Drachma Would Be Difficult, Damaging, and Dangerous

Kent Hughes Director of the Program on America and the Global Economy at the Woodrow Wilson Center

#2
23 Pts
If Greece Stays in the Eurozone, It Has No Future

Yes – If Greece Stays in the Eurozone, It Has No Future

John Kallianiotis Professor at the University of Scranton and a Native of Greece

#3
21 Pts
Greece Leaving the Eurozone Would Be a Disaster

No – Greece Leaving the Eurozone Would Be a Disaster

Scheherazade Rehman Professor at George Washington University

#4
20 Pts
Greece's Influence on the Eurozone Is Ludicrous

Yes – Greece's Influence on the Eurozone Is Ludicrous

Maurice McTigue Vice President of the Mercatus Center at George Mason University

#5
10 Pts
Greece Should Never Have Been a Part of the Euro

Yes – Greece Should Never Have Been a Part of the Euro

Eric Langenbacher Visiting Assistant Professor at Georgetown University

#6
8 Pts
Goodbye Euro, Welcome Back Drachma

Yes – Goodbye Euro, Welcome Back Drachma

Edward Harrison Founder of CreditWritedowns.com

#7
2 Pts
Greece Must Reform Its Economy and Stay in the Eurozone

No – Greece Must Reform Its Economy and Stay in the Eurozone

Michael Arghyrou Senior Lecturer at Cardiff Business School

#9
-7 Pts
The Costs of Greece Leaving the Euro Could Be Very High

No – The Costs of Greece Leaving the Euro Could Be Very High

Sabina Dewan Director of Globalization and International Employment at the Center for American Progress

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