Debate Club

Goodbye Euro, Welcome Back Drachma

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The question many macro analysts are asking today is whether Greece will leave the euro zone. As Greece's situation is untenable economically and politically, a Greek exit from the euro zone is likely. A brief review of the situation demonstrates why.

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

With a quarter of the population unemployed and fully half of Greece's youth without work, Greece is clearly in an economic depression that can only worsen as government budget and wage cuts suck money out of the Greek economy. The depression has radicalized the voting population, pushing the Greek people to their breaking point; many voters have defected from the two mainstream Greek parties which they hold responsible for the depression and have flocked to more extreme fringe parties. These parties have rejected the crushing austerity programs carried out by Greece's two mainstream parties.

Meanwhile, in Germany, voters are concerned about rewarding Greece's so-called fiscal profligacy with German taxpayer money. Germany, with a government debt burden now in excess of 80 percent of gross domestic product, has long been in violation of the European government debt hurdle of 60 percent debt to gross domestic product itself. German voters are fearful that despite the wage sacrifices of the last decade, they could end up paying to reduce their own government debt burden and the Greek government burden at the same time. Because the perception in Germany is that Greece's problem is of its own making, German voters will not reward domestic political parties that advocate aiding Greece without very onerous bailout conditions attached.

[See pictures of the EU in crisis.]

But since the Greek economy is on the verge of collapse, German voters demanding more pain means there is little hope in the economic and political situation in Europe for Greece continuing in the euro zone. The political situation in Greece mandates noncompliance with the existing austerity regimen, which will result in European Union and International Monetary Fund assistance being withheld. Greece will have no choice but to default and exit the euro zone. However, once Greece reverts to the drachma, after the extreme economic chaos that results, Greece will benefit from a substantially weaker currency that is the missing link in allowing the country to pull out of its debt deflationary spiral. Will Greece exit the euro zone? The answer is resoundingly yes.

Edward Harrison

About Edward Harrison Founder of CreditWritedowns.com

Tags
Greece
euro
European Union
global economy

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

#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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