But in a bankruptcy scenario, there would be fewer public-policy options for the Greek government. It would be forced to live within the constraints of current revenues, forcing additional changes to union agreements and pensions, while curtailing resources available for public safety and the military. Faced with such severe fiscal stringency, a Greek government might have more domestic support (including from affected employees) for privatizing the electricity, gas, telecommunications, and lottery companies, and in tackling restrictive guild rules that still protect truckers, pharmacists, notaries, and other well-connected sectors. It would indeed be shock therapy, but if the political system survives, it may emerge stronger as compared with the devaluation scenario, which may be based on an illusion that Greece could define its own reality.
Consideration of such dire what-if scenarios makes it clear Greece is best off doing whatever it takes to remain on the rescue program prescribed by the European Union and the International Monetary Fund, while tackling on its own the structural constraints to growth. Devaluation does not offer many advantages to small, open economies in the modern, interconnected global economy and is especially dangerous if it leads to irresponsible public policies (as has happened in Argentina).
It may be tempting for Greeks to blame their predicament on Northern Europeans, investment bankers, or others. But with courage and commitment to addressing their structural ills, they could emerge stronger and more capable of broadly based growth. It is a great country that has endured even more existential challenges in its long history.
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