Debate Club

Should Greece Leave the Eurozone? >

Greece Must Reform Its Economy and Stay in the Eurozone

Leaving the eurozone would be catastrophic for Greece and dangerous for the global economy

May 16, 2012

About Michael Arghyrou:

Michael Arghyrou is a senior lecturer in economics at Cardiff Business School.

Greece leaving the eurozone would be catastrophic for Greece and very dangerous for the global economy.

For Greece, a reintroduced drachma would be devalued against the euro by at least 50 percent. This would cause imported inflation, ending up in double-digit values. Greek interest rates would also increase substantially, making business and personal loans very expensive. Greek firms relying on foreign imports, or those with loans in foreign currency, will see their costs soar, leading to increased business closures and unemployment. As a euro exit will almost certainly be accompanied by a Greek default, international markets will provide Greek firms, banks, and the Greek state very little credit. Greece will then face shortages of basic commodities, such as oil, medicine, or even foodstuffs. Very importantly, leaving the euro would deprive Greece of its only reference point of stability, its EMU status. An isolated Greece will lack policy/institutional credibility, putting off foreign investment. With international money markets inaccessible, a still deficit-generating Greece will regress into an increasingly closed-economy status, having to print money to pay for its internal debts. The medium-term result will be stagflation and a dramatic fall in living standards. If an economic and social breakdown follows, one may not completely discount the probability of an authoritarian, or even totalitarian, regime emerging.

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

For the global economy, a Greek euro exit risks contagion to countries such as Portugal, Ireland, and most prominently Spain and Italy. Europe will enter a period of increased uncertainty, threatening the euro's very existence and very likely resulting in a major international recession through two channels. First, through a new credit crunch: The international banking system is highly exposed to European bonds. A collapse of the EMU periphery bond market will result in significant balance-sheet losses, leading to a financial crisis similar to, or perhaps worse than, the one of 2008-9. Second, through the trade channel: With the world's largest economy, the eurozone, in recession, international trade will be suppressed, affecting growth in developed as well as emerging countries.

To sum up, a Greek exit from the euro would be catastrophic for Greece and highly damaging for everybody else. To avoid it, Greece must commit credibly to promote actively the long-overdue reform of its economy, while the rest of the EMU member-states must allow Greece a less rigid framework within which to do so.

Tags:
Greece,
global economy,
European Union,
euro
Other Arguments
#1

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

#2
#3

Yes — If Greece doesn't leave voluntarily, Europe should expel it

MAURICE MCTIGUE, Vice President of the Mercatus Center at George Mason University

#4

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

#5
#6

Yes — It is next to impossible for the Greek economy to recover within the eurozone

ERIC LANGENBACHER, Visiting Assistant Professor at Georgetown University

#8

No — Europe would have a failed state on its hands

ALEXEI MONSARRAT, Director of the Atlantic Council Global Business & Economics Program

#9

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

About Debate Club

A meeting of the sharpest minds on the day's most important topics, Debate Club brings in the best arguments and lets readers decide which is the most persuasive. Read the arguments, then vote. And be sure to check back often to see who has gotten the most support—and also to see what's being discussed now in the Debate Club.

Have ideas about what the Club should be debating? E-mail it to dclub@usnews.com.

You can also join the debate on Facebook or follow Debate Club on Twitter.

Advertisement
Cartoons
Thomas Jefferson Street Blog
President Obama's Code Pink Heckler Medea Benjamin Was Plain Rude

It's become acceptable for people to interrupt the president while he is delivering a formal speech on a deadly serious topic.

Obama Commerce Nominee Penny Pritzker’s Tax Problem

Obama’s Commerce Department nominee has some Romney-esque tax issues.

Oklahoma Tornado Reminds Us of the Value of Teachers

The Oklahoma tornado reminds us of all the roles teachers take on.

IRS, AP and James Rosen Scandals Strike at the First Amendment

The Obama scandals paint a picture of an administration at odds with the First Amendment.

Anthony Weiner Is Too Liberal to Be New York City Mayor

New York City doesn't need another Democratic mayor.

Organizations Masquerading as Tax-Exempt is the Real IRS Scandal

The real scandal at the IRS is electioneering groups getting tax-exempt status.

E.W. Jackson Proves the Tea Party Learned Nothing

By nominating E.W. Jackson, Virginia Republicans hope extremism will save them.

IRS, AP and Benghazi Are Not Obama Scandals

The word "scandal" doesn't appropriately describe anything going on in Washington these days.

Advertisement