{"id":823,"date":"2015-07-08T11:38:42","date_gmt":"2015-07-08T11:38:42","guid":{"rendered":"http:\/\/politicalscience.ie\/?p=823"},"modified":"2015-07-08T11:44:28","modified_gmt":"2015-07-08T11:44:28","slug":"dont-fear-the-grexit-unless-youre-greek","status":"publish","type":"post","link":"http:\/\/politicalscience.ie\/?p=823","title":{"rendered":"Don\u2019t fear the Grexit (Unless you\u2019re Greek)"},"content":{"rendered":"

\"Sam<\/a>Over a month ago\u00a0I declared<\/a>\u00a0that the Grexit was a fait accompli. As soon as Chancellor Merkel\u00a0publicly declared\u00a0<\/a>it was a possibility it was the only end game. Why? Because Greek debt is (and has been) unsustainable and there were ever only two finishes to the crisis: debt-relief or Grexit. The former would be a nice thing to do in a world\u00a0devoid of political reality<\/a>, but, for several reasons, it is never going to happen. First, the overwhelming sense of many important creditor nations (and several peripheral ones) was that Greek debt has been a result of\u00a0Greek profligacy<\/a>, and those countries can\u2019t ask their tax payers to foot the bill for\u00a0early Greek retiremen<\/a>t. Second, even if these leaders could summon the\u00a0\u201cstatesmanship\u201d<\/a>\u00a0necessary to face down their own electorates, relieving Greek debt would create an incredible moral hazard for the other Eurozone debtor nations. If Greece is worthy of a debt write down than surely Ireland? or Portugal? or Spain? How could the ECB, IMF or European Governments refuse? 250 billion \u20ac can be managed (heck, Quantitative Easing has printed that much already), a trillion+ would be a bit more challenging. Finally, while it has certainly been bad in Greece, many parts of the EU (and EMU) are still far poorer. As\u00a0this chart\u00a0<\/a>shows, per capita spending on pensions of the Baltic states is significantly less than half that in Greece. Other social spending shows similar relationships. Those invoking the \u201cmorality\u201d of debt relief in Greece must think that the Greek elderly are somehow more deserving than their Lithuanian counterparts. The Slovakian finance minister recently made clear that nominal debt relief is a\u00a0\u201cred line\u201d<\/a>.<\/p>\n

So Grexit it is. But Grexit need not be feared. The political argument against Grexit is weak, but the economic argument is weaker still. The EU is a political project. The EMU is primarily an economic project. Yes, it is not an optimal currency unit and has had its trials and tribulations, but that is largely because it contains states like Greece, who incidentally\u00a0cooked their books<\/a>\u00a0to join. The exit of a suboptimal member out of a currency unit doesn\u2019t make it weaker \u2013 it makes it stronger. Even\u00a0if<\/em>\u00a0contagion spreads,\u00a0which looks increasingly unlikely<\/a>, and a few other suboptimal dominoes fall, say Portugal, this still isn\u2019t fatal to the currency. \u00a0An exchange rate is a price, based on supply and demand of and for a currency, which is driven, to a large extent, by the strength of the economy behind the currency. When an economy that is in the midst of a\u00a0depression<\/a>\u00a0not seen since the 1930s leaves the fold how can markets do anything but cheer?<\/p>\n

The\u00a0refrain<\/a>\u00a0that the Euro is a \u201cpolitical project\u201d is only partly true. Britain\u2019s tensions with the EU have little to do with its maintenance of Sterling. Denmark is as much Europe as Belgium. Sweden has chosen an indefinite,\u00a0de facto<\/em>, opt out despite a legal obligation to join, and yet remains integral to the European project. Polish plumbers can live and work in France as easily as the Irish. These states all illustrate that EMU membership is NOT a\u00a0necessary<\/em>\u00a0component of being part of the European political project. Many of the states out of the Euro are there because they do not feel the currency fits their macroeconomic goals. The Euro does not fit Greece\u2019s macroeconomic goals and the prudent move is joining the outsiders. For most of the remaining \u201cEurozone 18\u201d the Euro will continue to work, backed by the 4th,<\/sup>\u00a06th<\/sup>, 8th<\/sup>, 14th<\/sup>\u00a0and 17th<\/sup>\u00a0largest economies in the world.<\/p>\n

Grexit will be a painful adjustment for Greece, as outlined today in the\u00a0WSJ<\/a>, though probably no more than continued austerity and with at least some prospect of eventual recovery (and perhaps even readmission). Germany is right to (finally)\u00a0call for<\/a>\u00a0humanitarian assistance which is vitally necessary as the Greeks rebuild the social safety nets while adjusting to the new Drachma reality. However, Grexit is not a boogeyman that will destroy the European project. Instead it is a sensible and effective separation that will ultimately leave both parties better off.<\/p>\n","protected":false},"excerpt":{"rendered":"

Over a month ago\u00a0I declared\u00a0that the Grexit was a fait accompli. As soon as Chancellor Merkel\u00a0publicly declared\u00a0it was a possibility it was the only end game. Why? Because Greek debt is (and has been) unsustainable and there were ever only … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-823","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"http:\/\/politicalscience.ie\/index.php?rest_route=\/wp\/v2\/posts\/823","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/politicalscience.ie\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/politicalscience.ie\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/politicalscience.ie\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/politicalscience.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=823"}],"version-history":[{"count":3,"href":"http:\/\/politicalscience.ie\/index.php?rest_route=\/wp\/v2\/posts\/823\/revisions"}],"predecessor-version":[{"id":826,"href":"http:\/\/politicalscience.ie\/index.php?rest_route=\/wp\/v2\/posts\/823\/revisions\/826"}],"wp:attachment":[{"href":"http:\/\/politicalscience.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=823"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/politicalscience.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=823"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/politicalscience.ie\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=823"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}