I admit I lifted this title from Krugman's post yesterday-it's a very good turn of phrase.
"How did we get to this point? Nothing fills me with quite as much despair as the persistence of the story line that it’s all about continuing Greek fecklessness, that the Greeks haven’t done anything. In fact, Greece has imposed almost inconceivable pain on itself. Here’s a comparison between Greece and Spain, the current favorite son of the austerity camp (although the Spaniards themselves aren’t impressed)"
"The problem has been that severe spending cuts in an economy with no independent monetary policy and no ability to devalue lead to severe economic contraction, which in turn means that a large part of what’s gained fiscally at the front end gets lost via reduced revenue. This isn’t the fault of the Greeks, it’s basically a design flaw in the euro itself."
http://krugman.blogs.nytimes.com/2015/06/18/thinking-about-the-all-too-thinkable/?module=BlogPost-ReadMore&version=Blog%20Main&action=Click&contentCollection=Opinion&pgtype=Blogs®ion=Body&_r=0#more-38675
However, he goes on to make a very good point that I was making yesterday-a Grexit will likely hurt Europe more than Greece itself.
"So what about Grexit? At this point quite a few people on the creditor/Troika side of the negotiations seem almost to welcome the prospect. But this is bizarre in terms of their underlying interests. Yes, the lives of the officials would become easier, for a while, because they wouldn’t have to deal with Syriza. But from the point of view of the creditors, Grexit would be a pure negative. They would almost surely receive less in payments than they would under any deal that keeps Greece in, and the proof that the euro is in fact reversible would grease the rails for future crises, even if the ECB is able to contain this one."
"And as Martin Wolf points out, Greece will still be there, and will still need dealing with."
"The Greeks, on the other hand, should feel conflicted. There would probably be a lot of financial chaos in the immediate aftermath of euro exit. And maybe the apocalyptic warning from the Bank of Greece that devaluation would push the nation back into the Third World is right, although I’d like to know about the model and historical examples that would justify this claim. But absent that kind of implosion, a devalued currency should eventually produce an export-led recovery — I understand the cynicism one hears, but demand curves do slope downwards even in Greece."
"The point is that nobody should be casual or confident here. But the creditors should actually be even more worried than the Greeks about a potential exit that has no upside for the rest of Europe."
"If anything, I think the example of Iceland conclusively shows that there is life after the euro. While the German people may snarkily root for a Grexit the irony is that it's Germany who has most to lose while the Greeks have..."
"How did we get to this point? Nothing fills me with quite as much despair as the persistence of the story line that it’s all about continuing Greek fecklessness, that the Greeks haven’t done anything. In fact, Greece has imposed almost inconceivable pain on itself. Here’s a comparison between Greece and Spain, the current favorite son of the austerity camp (although the Spaniards themselves aren’t impressed)"
"The problem has been that severe spending cuts in an economy with no independent monetary policy and no ability to devalue lead to severe economic contraction, which in turn means that a large part of what’s gained fiscally at the front end gets lost via reduced revenue. This isn’t the fault of the Greeks, it’s basically a design flaw in the euro itself."
http://krugman.blogs.nytimes.com/2015/06/18/thinking-about-the-all-too-thinkable/?module=BlogPost-ReadMore&version=Blog%20Main&action=Click&contentCollection=Opinion&pgtype=Blogs®ion=Body&_r=0#more-38675
However, he goes on to make a very good point that I was making yesterday-a Grexit will likely hurt Europe more than Greece itself.
"So what about Grexit? At this point quite a few people on the creditor/Troika side of the negotiations seem almost to welcome the prospect. But this is bizarre in terms of their underlying interests. Yes, the lives of the officials would become easier, for a while, because they wouldn’t have to deal with Syriza. But from the point of view of the creditors, Grexit would be a pure negative. They would almost surely receive less in payments than they would under any deal that keeps Greece in, and the proof that the euro is in fact reversible would grease the rails for future crises, even if the ECB is able to contain this one."
"And as Martin Wolf points out, Greece will still be there, and will still need dealing with."
"The Greeks, on the other hand, should feel conflicted. There would probably be a lot of financial chaos in the immediate aftermath of euro exit. And maybe the apocalyptic warning from the Bank of Greece that devaluation would push the nation back into the Third World is right, although I’d like to know about the model and historical examples that would justify this claim. But absent that kind of implosion, a devalued currency should eventually produce an export-led recovery — I understand the cynicism one hears, but demand curves do slope downwards even in Greece."
"The point is that nobody should be casual or confident here. But the creditors should actually be even more worried than the Greeks about a potential exit that has no upside for the rest of Europe."
"If anything, I think the example of Iceland conclusively shows that there is life after the euro. While the German people may snarkily root for a Grexit the irony is that it's Germany who has most to lose while the Greeks have..."
Well, what do they have to lose? I'm tempted to say 'Nothing more than their chains.' There may be some temporary pain but as Krugman says this should lead to a boom in exports.
http://diaryofarepublicanhater.blogspot.com/2015/06/would-grexit-be-epic-tragedy.html
Not only would a Grexit not be an epic tragedy it might not even be a Greek Tragedy... Ok, I had to go there.
Anyway, this morning we are hearing talk about a Greek exit.
"Greek banks were offered more emergency funding on Friday, amid fears that massive fund outflows may prevent its lenders from opening next week.
"It comes as investors keep a close eye on Greece, after talks with euro zone finance ministers failed to reach a deal. An emergency meeting has now been slated for Monday, as officials scramble to keep the country from defaulting on its debt - and possibly even leaving the euro zone."
http://www.cnbc.com/id/102769772
Well look at the very least a Grexit will give economists another natural experiment. As for the Greeks how can things actually get worse? Surely they have at least be wondering if the Drachma isn't their salvation after all, I'm actually puzzled by the hyperbolic talk by the Bank of Greece like Krugman is.
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