Debate Club

A Return to the Drachma Would Be Difficult, Damaging, and Dangerous

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Is exit the only option? The path to the drachma can seem very tempting. But, the reality will prove difficult, damaging, and politically dangerous. Stay or leave, Greece faces a period of real austerity. Government revenues do not cover pension costs, government salaries, or other government expenses.

Can the Greeks weather the economic storm? Can the Greeks create the institutions that will lead to long-term growth—including a tax and spending system that works? There are skeptics. American standup comics warn against opening an H&R Block franchise in Athens—after all nobody pays taxes.

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

There has to be a better way. Rather than leave the eurozone, the Greek economic and political leadership should seize the opportunity to rebuild a civic culture that will support stable finances and long-term growth.

Greece carries a heavy responsibility for its own problems. They borrowed heavily to live beyond their means. They tolerated rampant tax evasion. They worked (with the help of a major American financial institution) to hide the seriousness of their financial calamity from international and domestic advisers.

Greece does not bear all the blame. Lenders should have been more vigilant. Countries joined the eurozone that did not meet the standards for debt and deficits. There was too little thought to what made an optimal currency zone. Intra-eurozone trade and current account balances were ignored for too long.

Yet, if they leave the consequences will go well beyond austerity. Cascading defaults—including on funds borrowed from the International Monetary Fund—will shut Greece out of international financial markets. Foreign Direct Investment will evaporate. Greece may not have a treasury that can limit capital flight by imposing capital controls.

[See pictures of the EU in crisis.]

If Greece stays, it cannot be expected to survive alone. There will be austerity—it must be moderated and fairly shared. The renewed European emphasis on growth should be rapidly applied to Greece. There needs to be a European effort to stimulate growth and the creation of new, Greek institutions.

A Greek exit coupled with across the board defaults will have a potentially devastating impact on the eurozone. Even if Europe's financial fire walls prevent contagion from taking place, the European project will be tarnished. Starting in 1870 with the Franco-Prussian War, Europe lived through three civil wars in less than a century. Looking forward, Europe should prove that peace and prosperity are its future, a future that includes Greece.

Kent Hughes

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

Tags
Greece
euro
European Union
global economy

Other Arguments

#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

#8
-6 Pts
A Greek Exit From the Euro Would Lead to Chaos

No – A Greek Exit From the Euro Would Lead to Chaos

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

#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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