Should Greece Leave the Eurozone? >
Goodbye Euro, Welcome Back Drachma
Greek voters have rejected the German-imposed austerity, making a eurozone exit likely
May 16, 2012
About Edward Harrison:
Edward Harrison is the founder of CreditWritedowns.com and a former career diplomat, investment banker, and technology executive with over 20 years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television, and RT Television.
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.
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- Other Arguments
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#16837
No — Rather than leave the eurozone, Greece should seize the opportunity to make real changes
KENT HUGHES, Director of the Program on America and the Global Economy at the Woodrow Wilson Center
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#26239
No — Greece must stay in the eurozone until its exit would cause less damage than it would now
SCHEHERAZADE REHMAN, Professor at George Washington University
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#36241
Yes — If Greece doesn't leave voluntarily, Europe should expel it
MAURICE MCTIGUE, Vice President of the Mercatus Center at George Mason University
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#43418
Yes — Greece has to leave the eurozone for the benefit of its own citizens
JOHN KALLIANIOTIS, Professor at the University of Scranton and a Native of Greece
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#63325
Yes — It is next to impossible for the Greek economy to recover within the eurozone
ERIC LANGENBACHER, Visiting Assistant Professor at Georgetown University
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#72928
No — Leaving the eurozone would be catastrophic for Greece and dangerous for the global economy
MICHAEL ARGHYROU, Senior Lecturer at Cardiff Business School
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#82225
No — Europe would have a failed state on its hands
ALEXEI MONSARRAT, Director of the Atlantic Council Global Business & Economics Program
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#92126
No — The prospect of Europe's debt crisis spilling over to the United States is threatening
SABINA DEWAN, Director of Globalization and International Employment at the Center for American Progress
