By Mark Weisbrot |
Greek should leave the as soon as possible.
The current impasse in Greece over forming a new government shows that the political will and governance capacity do not exist to push through the "austerity" program that is vital not only for the country to qualify for the various bailouts, but also for the long-term health of the Greek economy. This has eroded the already-little desire of other eurozone economies (especially mighty Germany) to continue to transfer funds, to reduce Greece's borrowing costs through pooling debt, or to create a precedent that validates the country's bad behavior—tax evasion, corruption, out-of-control spending—that got it into this predicament in the first place.
Moreover, it is next to impossible for the Greek economy to recover within the eurozone. It needs the flexibility of its own currency and exchange rate (enabling a competitive devaluation) to regain its footing and to create the possibility for growth. Yes, the short-term fallout would be devastating, but this is necessary for the medium- and long-term prospects of the country.
Resources are always scarce at a certain point, and the rest of the eurozone needs to concentrate on creating a firewall to contain the contagion that might affect other peripheral economies. If worse comes to worst, Portugal and even Ireland must be sacrificed to save Spain. If Spain falls (or, God forbid, Italy), the euro is done—and the European and world economies would suffer immeasurable damage.
In fact, Greece should never have been part of the euro in the first place. It was admitted (along with Italy) for "political" reasons back in the late 1990s. Deficient economic and governance performance was willfully ignored at the time and the most optimistic assumptions were accepted—that Greece would somehow magically change its ways thanks to membership in the Euro and the dictates of the (toothless) Stability and Growth Pact.
If this crisis generates any real lessons—beyond the necessity of better financial oversight and mechanisms to ensure compliance—it is that policy should never be based on wishful thinking, but rather on real analysis backed up by cold, hard facts.
About Eric Langenbacher Visiting Assistant Professor at Georgetown University
Kent Hughes Director of the Program on America and the Global Economy at the Woodrow Wilson Center
Michael Arghyrou Senior Lecturer at Cardiff Business School
Sabina Dewan Director of Globalization and International Employment at the Center for American Progress