Debate Club

Greece's Influence on the Eurozone Is Ludicrous

By + More

Greece's irresponsible fiscal behavior leading up to the Great Recession caused its current problems, not the recession itself. The recession simply made abundantly transparent what insiders knew, but were unwilling to accept: Greece's fiscal behavior was unsustainable. Greece is now at a point where it only makes economic sense that they either leave voluntarily or have the European Union expel them.

One consequence of a Eurozone departure will be real hardship for the people of Greece. Their short-term expectations of lifestyle and affluence will be significantly reduced. And although the spending power of their money will be dramatically lower than the euro's, their competitiveness will dramatically improve as a result of this devaluation. There will be increasing demand for Greek goods and services, particularly in industries like tourism, and gradually they will earn back their affluence.

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

Changing monetary values has long been the market's mechanism for rewarding good economic management and penalizing poor economic management. The creation of the Eurozone, however, distorted this tool. The value of the Euro is dominated by the huge economies of Europe like Germany, France and Italy. Since the economic performance of small economies like Greece and Portugal have little effect on the value of the Euro, their poor fiscal management prior to the recession was not reflected in currency values. Instead, it was disguised by the surrounding, large economies.

So why has tiny, little Greece been able to roil the financial markets of the world?

The international financial community watches nervously to see whether governments are going to use their taxpayer's dollars or euros to guarantee the financial sector's risky bets, like buying the bonds of countries like Greece. This drama, more than anything else, slowed the economic recovery to a snail's pace.

[See pictures of the EU in crisis.]

It is ludicrous that a tiny economy like Greece can influence financial markets in this manner. American markets have seen days when a larger value than Greek's entire economy was written off the market. Outside of Eurozone, Greece's situation would be an international nonevent with little effect on the international markets.

The only, possible exception to nonevent status is that Greece's experience should be a salutary lesson to policymakers in other countries: There are consequences for bad fiscal behavior.

Unfortunately, life for the citizens of Greece will be unpleasant for some time. But staying in the Eurozone will not fix their problems. It will only delay the inevitable.

Maurice McTigue

About Maurice McTigue Vice President of the Mercatus Center at George Mason University

Tags
Greece
euro
European Union
global economy

Other Arguments

#1
32 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
26 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
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

#5
13 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
11 Pts
Goodbye Euro, Welcome Back Drachma

Yes – Goodbye Euro, Welcome Back Drachma

Edward Harrison Founder of CreditWritedowns.com

#7
3 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
-8 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
-9 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

You Might Also Like


See More