Monday, May 21, 2012

Krugman: a Greek exit from the euro is unavoidable

Paul Krugman has been making it clear for months that without a drastic change in eurozone policies, changes which are almost impossible to imagine happening in the short term, that the eurozone will start to fall apart.

In an interview reported in Spiegel Online, Zukunft des Euro. Ökonom Krugman hält Griechen-Austritt für unvermeidbar 20.05.2012, he says he thinks it's unavoidable in practice.

German Chancellor Angela Merkel's destructive austerity policies will be up for discussion again at the "informal" EU summit Wednesday, with French President François Hollande leading the charge against Angie's brutal economics.

But Hollande isn't going to keep Greece in the eurozone, though that is still the officially-stated policy of all the eurozone countries. Here politics may be muddling the rhetoric more than usual. Angie's government has been none-too-subtly threatening Greece with kicking them out of the eurozone. Though it sounds more like salvation than a threat to me!

I suppose the threat part is that the promised debt-payment subsidies the EU is giving to Greece would be cut off. But those subsidies aren't helping the people of Greece, they are minimizing the losses of banks. And under Angie's policies, the conditions of receiving those payments is an economic austerity program that is destroying the Greek economy.

Polls show that a majority of Greeks still want to remain part of the eurozone. I haven't seen any detailed analysis of that result. But I'm guessing it has in large part to do with the Euro-speak of the political parties. Not even the leftist Syriza party wants to be the one to pull the trigger on leaving the eurozone if they are positioned to be scapegoated for doing so.

Something similar is going on among countries in the EU. The conservative and social-democratic parties have been very committed to the "European project", the EU. As have the Greens and many political groups and individuals that understand themselves to be to the left of the social-democrats. The overt opposition to "Europe" understood as the EU has been mostly from far-right groups of a nationalist and nativist cast.

So currently we have Hollande opposing the basic policies of Angienomics, but doing so in the name of preserving the EU and the eurozone and even of keeping Greece in the euro. It's at least partly about not being left with the label of being anti-Europe.

But the Greek situation is likely too far gone to keep it in the eurozone. It has to go the Argentina route: getting out of the euro currency tie, defaulting on its debts and begin restructuring its economy with its internal resources. Freed from the crushing debt burden, Greece would have considerable potential to boost its economy through government investment even if it were largely or completely shut out of the bond market, at least from what I've seen on it.

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"It is the logic of our times
No subject for immortal verse
That we who lived by honest dreams
Defend the bad against the worse."

-- Cecil Day-Lewis from Where Are The War Poets?


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