"There are a lot of questions about what happens going forward and I've tried to look at some of them today. I think there are a few key question."
1. Has the EU been bluffing or is this the end of the line and yesterday's vote really was for a Grexit?
1. Has the EU been bluffing or is this the end of the line and yesterday's vote really was for a Grexit?
http://diaryofarepublicanhater.blogspot.com/2015/07/what-happens-next-depends-on-whether-or.html
2. However, even if the EU doesn't really want Greece to leave and their real goal was simply to destroy Tsipras-if this was their goal then they obviously failed-the question still remains what's best for Greece? Would they in fact be better off in their own interest staying or leaving?
Krugman has argued that he thinks the best option for them now seems to be Grexit.
http://diaryofarepublicanhater.blogspot.com/2015/07/with-euro-can-you-ever-really-leave.html
Now Market Monetarist Lars Christensen makes the case that the Greeks ought to exit and the best comparison is Argentina-a companion I along with many others have made:
2. However, even if the EU doesn't really want Greece to leave and their real goal was simply to destroy Tsipras-if this was their goal then they obviously failed-the question still remains what's best for Greece? Would they in fact be better off in their own interest staying or leaving?
Krugman has argued that he thinks the best option for them now seems to be Grexit.
http://diaryofarepublicanhater.blogspot.com/2015/07/with-euro-can-you-ever-really-leave.html
Now Market Monetarist Lars Christensen makes the case that the Greeks ought to exit and the best comparison is Argentina-a companion I along with many others have made:
"It is no coincidence that I mention the example of Argentine. Hence, I have long argued that the present Greek crisis is very similar to the Argentine crisis of the late 1990s and early 2000s. Both countries have been suffering under the combined pressures of a monetary regime that creates strong deflationary pressures and a weak domestic political system."
"We can essentially think of this as both a demand and a supply problem. With the monetary system causing a collapse in aggregate demand and weak institutional structures at the same time causing a negative supply shock as well as creating downward rigidities to wages and prices."
"In the late 1990s the Argentine’s currency board set-up created serious deflationary pressures and a drop in nominal GDP, which caused a rise in Argentine debt ratios. There was a simple “solution” to this problem – Argentina should give up the currency board and devalue. That happened in early 2002."
http://marketmonetarist.com/2015/06/28/how-the-recovery-will-look-like-when-greece-leaves-the-euro/
He argues that Grexit would be the beginning of the recovery-the cause?
"I think we might very well see a similar development in Greece on the back of Grexit and given the price and wage rigidities in the Greek economy we are likely to see a sharp recovery in Greek real GDP growth – after the initial deep recession, but my guess is that Grexit will be the beginning of the end of this recession."
He also takes pains to argue that the Aregentina recovery was not primarily about an export boom thanks to the lower valued peso.
"Hence, I believe there is good reason to think that a potential Grexit will be the beginning of a sharp recovery in Greek growth – following the initial sharp contraction. However, I would like to stress that contrary to the common-held view such recovery will not be about Greece becoming more “competitive” due to the drop in value of the “New Drachma” (I easily see a 70-80% devaluation following Grexit)."
"Rather we are likely to see a sharp recovery in domestic demand as a likely sharp rise in inflation expectations will cause a sharp increase in money velocity. This combined with the expected increase in the money supply will cause a significant easing of Greek monetary conditions, which likely will spur a strong recovery in Greek growth."
He does go on to carp about the need for Greek structural reforms.
"Concluding, I am probably more optimistic that a potential Grexit will cause a recovery (after the initial contraction) in the Greek economy than most economists who tend to stress Greece’s structural problems. That, however, does not mean that I don’t think Greece has structural problems. In fact I believe the Greece has very serious structural problems and I will even go so far as to say that Greece’s deep structural problems are a result of fundamental constitutional problems."
"Hence, at the core of the problems that have dominated the Greek economic development for decades (if not centuries!) is a flawed political system. Therefore, if Greece wants to avoid ending up as present-day Argentina – where the initial positive effects of monetary easing has been “replaced” by overly easy monetary policy and large political uncertainties – then there is a need for fundamental constitutional reform to reduce the role of government in the Greek economy and constrain the unhealthy relationship between economic and political interests."
"So yes, monetary easing can solve the demand problems in the Greek economy (I think that actually was under way prior to Syriza winning the parliament elections), but monetary easing will not do anything about Greece’s structural and constitutional problems."
Look maybe these structural reforms are necessary or at least some of them but that's up to Greece. I have no problem with how Christensen frames it as in his scenario Greece gets out of its monetary straitjacket and then in the future its on them to implement these reforms if this is what's needed."
What I have a problem with is the EU trying to hold monetary relief for Greece hostage in exchange for these reforms. This is why yesterday's vote was so important. It was a vote for democracy first and foremost."
If the Greeks need reforms then that's something they will have to decide on their own not something the EU can ransom in exchange for euros.
"We can essentially think of this as both a demand and a supply problem. With the monetary system causing a collapse in aggregate demand and weak institutional structures at the same time causing a negative supply shock as well as creating downward rigidities to wages and prices."
"In the late 1990s the Argentine’s currency board set-up created serious deflationary pressures and a drop in nominal GDP, which caused a rise in Argentine debt ratios. There was a simple “solution” to this problem – Argentina should give up the currency board and devalue. That happened in early 2002."
http://marketmonetarist.com/2015/06/28/how-the-recovery-will-look-like-when-greece-leaves-the-euro/
He argues that Grexit would be the beginning of the recovery-the cause?
"I think we might very well see a similar development in Greece on the back of Grexit and given the price and wage rigidities in the Greek economy we are likely to see a sharp recovery in Greek real GDP growth – after the initial deep recession, but my guess is that Grexit will be the beginning of the end of this recession."
He also takes pains to argue that the Aregentina recovery was not primarily about an export boom thanks to the lower valued peso.
"Hence, I believe there is good reason to think that a potential Grexit will be the beginning of a sharp recovery in Greek growth – following the initial sharp contraction. However, I would like to stress that contrary to the common-held view such recovery will not be about Greece becoming more “competitive” due to the drop in value of the “New Drachma” (I easily see a 70-80% devaluation following Grexit)."
"Rather we are likely to see a sharp recovery in domestic demand as a likely sharp rise in inflation expectations will cause a sharp increase in money velocity. This combined with the expected increase in the money supply will cause a significant easing of Greek monetary conditions, which likely will spur a strong recovery in Greek growth."
He does go on to carp about the need for Greek structural reforms.
"Concluding, I am probably more optimistic that a potential Grexit will cause a recovery (after the initial contraction) in the Greek economy than most economists who tend to stress Greece’s structural problems. That, however, does not mean that I don’t think Greece has structural problems. In fact I believe the Greece has very serious structural problems and I will even go so far as to say that Greece’s deep structural problems are a result of fundamental constitutional problems."
"Hence, at the core of the problems that have dominated the Greek economic development for decades (if not centuries!) is a flawed political system. Therefore, if Greece wants to avoid ending up as present-day Argentina – where the initial positive effects of monetary easing has been “replaced” by overly easy monetary policy and large political uncertainties – then there is a need for fundamental constitutional reform to reduce the role of government in the Greek economy and constrain the unhealthy relationship between economic and political interests."
"So yes, monetary easing can solve the demand problems in the Greek economy (I think that actually was under way prior to Syriza winning the parliament elections), but monetary easing will not do anything about Greece’s structural and constitutional problems."
Look maybe these structural reforms are necessary or at least some of them but that's up to Greece. I have no problem with how Christensen frames it as in his scenario Greece gets out of its monetary straitjacket and then in the future its on them to implement these reforms if this is what's needed."
What I have a problem with is the EU trying to hold monetary relief for Greece hostage in exchange for these reforms. This is why yesterday's vote was so important. It was a vote for democracy first and foremost."
If the Greeks need reforms then that's something they will have to decide on their own not something the EU can ransom in exchange for euros.
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