Feature: Greece and the Euro

The dramatic events of the past week have brought again into question Greece’s participation in the Eurozone. Will Greece manage to stay in the Eurozone or will it have to exit? Should Greece seek to exit? More generally, what are the costs and benefits for Greece to continue being part of the Eurozone?

An early post on this blog by Harris Dellas argues that it made good economic sense for Greece to join the EMU, and that the cost of exiting the Euro would be substantial without any significant countervailing benefits. Costas Azariadis argues instead in a new post that on balance Greece would be better off exiting the Euro because its debt burden is not sustainable even under the new haircut, and because a devaluation would bring growth benefits. More contributors to this blog will express their views on this extremely important question over the next few months.

This entry was posted in Banking and finance, Europe, General, Macroeconomics. Bookmark the permalink.

2 Responses to Feature: Greece and the Euro

  1. Dimitri Vayanos says:

    Dear Mr. Kastner,

    We agree with your recommendation: Greece must focus its efforts on implementing structural reforms that will bring growth. In fact we agree so much with your recommendation that this is the main theme of this blog since its inception 1.5 year ago! Just scroll down to older posts, and you will see many articles emphasizing that Greece must focus on structural reforms, and making specific proposals for reforms. For example, below are some articles in which I am an author (in reverse chronological order). Articles by many other colleagues emphasize similar themes.

    Thanks for your comment.

    Dimitri Vayanos






  2. Very sophisticated articles and blog posts are being published every day about technical solutions to the Greek and European debt problem. They range from Eurobonds to EFSF-leveraging to Modest Proposals, etc. etc. There are undoubtedly brilliant minds at work.

    Here is an appeal to all those brilliant minds: the Greek debt is not going to go away regardless how smart the technical solutions are. On the contrary, the foreign debt of Greece is going to rise going forward; it cannot decline (unless the discussed haircut comes through but even that will be but a drop on a hot stone). So why devote so much brainpower to something which has no near-term solution instead of applying it to specific proposals as to how the Greek economy could become strong? The stronger the Greek economy becomes, the greater the likelihood that more Greek debt can eventually be repaid (or rather: refinanced in capital markets).

    The appeal is: come up with proposals how the Greek economy can be transformed into a value-generating, competitive market economy, and grow! One such proposal is here (http://klauskastner.blogspot.com/2011/09/endgame-for-greece.html). Come up with many more!

    One could argue that no growth plans for the economy can be implemented before the debt problem is solved. True. But keep it simple!

    My suggestion: commit to the holders of Greece’s sovereign debt that, say, 10% of government expenditures will be allocated to interest payments over the next 10 years. And then let financial engineers work out combinations of amounts/tenors/interest which can be supported by that amount of interest payments.

    Growth is the answer to most debt problems!

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