Friday, March 26, 2010

FT: A euro exit is the only way out for Greece

Financial Times:
A really good article on the Euro and the conundrum of Greek fiscal problems. Note the word ONLY in that headline.
faces the threat of state bankruptcy. No longer is there any illusion
that membership of Europe’s economic and monetary union provides
protection from harsh realities. Since it entered the euro area in 2001,
Greece has sacrificed competitiveness and amassed enormous trade
deficits. Theoretically, to make up the economic ground lost in less
than a decade, the Greeks would need to devalue by 40 per cent. But in a
monetary union, that is impossible.

and they include this grim observation:
It is reasonably clear that Greece has run out of options. The country
has adopted an austerity programme of near-unprecedented severity,
cutting government spending, raising taxes and depressing salaries. This
programme completely ignores Keynes’ dictum that states must face
crises with counter-measures to support demand. The Greek action is
painfully reminiscent of Germany’s ill-fated moves to slash spending in
the 1930s slump, which taught the world that cutting budgets to appease
creditors in a downturn generates mass unemployment and radicalises

read the whole article here, it is not long. but it is clear.

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