Debate Club

Greece Leaving the Eurozone Would Be a Disaster

By SHARE

However, tempting it may be to revoke Greek membership in the euro club, it will only benefit the rest of us if they leave right now. That is not realistic.

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

The eurozone is equivalent to a Catholic marriage (no divorce or a very messy and costly one) and an attempted Greek exit now will do more damage to global financial markets. On June 17 the Greeks will try to form a new government again. The end result most assuredly will be reneging on previous bailout promises and slowing down of austerity programs. This will almost certainly cause another financial market drama which will crescendo when the European Union (Germany and France) and International Monetary Fund have to decide whether or not to give the new Greek government the next portion of the bailout money in mid-summer. If the bailout money is given to the Greeks, this will simply buy the rest of the world more time until the next calamity. If there is no EU/International Monetary Fund bailout money, the Greeks are bust within two months but this time there is no one to bail them out. This will bring chaos, anxiety, and uncertainty as it will scare the markets; and southern Europe will be under pressure again. This anxiety will unquestionably spread to Italy. Despite the two "Mario brothers" (Italy's Monti and European Central Bank's Draghi), Italy is too big to save. If Italy's current liquidity problem turns into a real solvency problem, then the sky really is falling and it will impact us here in America. Thus the EU and IMF will be under pressure to give the next portion of bailout money to the Greeks this summer.

For the Greeks, being out of the eurozone would mean being locked out of the global private capital markets or paying such a high price to borrow that economic growth will be a distant memory. Any new money the Greeks create (new drachma) will lose 50 percent of its value the day it is printed. Thus the only salvation for the Greeks is to stay in the eurozone no matter how painful. The only sane answer to this mess is to not to try to kick the Greeks out now but rather kick the "can down the road" until such time that the possibility and messiness of a Greek exit causes less ripples in the markets. So for now, the answer is no.

Scheherazade Rehman

About Scheherazade Rehman Professor at George Washington University

Tags
euro
Germany
Greece
European Union
France

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

#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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