Come what may, Greece is in deep trouble either way: impose reforms and people suffer or default and – people suffer, world press reports say.
What Greece Faces if it Defaults
New York Times – Uki Goni
When President Adolfo Rodríguez Saá told Congress on Dec. 23, 2001 that “the Argentine state will suspend the payment of its foreign debt,” legislators jumped to their feet with joy. Their cheering quickly morphed into a chant of “Ar-gen-ti-na! Ar-gen-ti-na!”
Today, it is Greece, led by a recently elected populist left-wing party, Syriza, that is contemplating a similarly drastic unilateral declaration of independence from foreign creditors and international financial institutions.
Economists like Nouriel Roubini, a professor at New York University, have long argued that “Greece should default and abandon the euro,” using “Argentine-style measures” to prevent “a disorderly fallout.” Far from the sky falling in, they say, Argentina’s economy soon roared back to prosperity; Greece should follow suit.
But were the years that followed really so rosy for the people of Argentina?
With the economy in free fall, about half the country’s population was below the poverty line. The country’s middle class took to the streets by the tens of thousands with pots and pans held high, clanging them in what became the echoing beat to Argentina’s 2002 social collapse.
“From now on, I sleep with my casserole beneath my bed,” said one woman, proudly proclaiming her commitment to the protest movement.
A run on the banks had already forced the resource-starved government to enact the most draconian economic measures in Argentina’s history. Savings accounts totaling $66 billion were frozen across the country.
Depositors started protesting inside banks. One man went into a bank with a stick of dynamite, demanding his savings to pay for a medical operation for his seriously ill wife.
Soon, most of Argentina’s banks were boarded up with thick wooden panels, on which depositors angrily banged their pots and pans.
Well-off Argentines could get around the restrictions. In back rooms, large account holders were able to unofficially withdraw thousands of dollars at a time, or even wire their savings abroad through a growing black market …
Greeks would do well to realize what may follow if they back a Syriza-led default and leave the eurozone. They may be stamping their feet for Prime Minister Alexis Tsipras today. Tomorrow, they could be banging their pots in protest.
Greece, Eurozone Stuck With Each Other
Sometimes a country becomes so overridden by debt that it actually makes sense for it to default, abandon its currency and start over. Greece is not one of those countries.
That hasn’t stopped a number of economists from arguing otherwise, however, and Prime Minister Alexis Tsipras’s statement that he may call a referendum on any deal with creditors suggests Greeks might soon be asked to make a choice.
If they are, they should trust their instincts (insofar as they can be measured by opinion polls) and stick with the euro.
It isn’t that default or leaving a currency union is unthinkable. Far from it: The Hellenic peninsula was home to the first recorded default in the fourth century B.C., and modern Greece has reneged on its debts four times since gaining independence in 1829.
Worldwide, more than 70 countries have exited currency unions and pegs since 1945, not all of them painfully.
The argument for Greece to go it alone has always been superficially attractive. For one thing, it should never have joined the euro in the first place, because it couldn’t meet the European Union’s debt-limit requirements.
And the standard way for overextended countries to reboot their economies is to devalue their currencies, increase their exports and start growing again. So long as it’s in the euro zone, Greece can’t do this.
The likely outcome of a return to the drachma would be more misery for Greece. While some defaults lead to recovery, often after a short period of pain, others haven’t been successful or quick.
In Greece, the combination of poor governance and a falling currency has tended to produce inflation rather than sustainable growth. There’s little reason to believe this has changed.
Sidelining Varoufakis Won’t Solve Greece’s Real Problem
The New Yorker – John Cassidy
The news that Greece’s controversial finance minister, Yanis Varoufakis, has been shuffled out of negotiations with the country’s creditors, in favor of a team led by the deputy foreign minister Euclid Tsakalotos, evidently pleased the European financial markets: on Monday and Tuesday, stocks moved higher and yields on Greek bonds fell sharply.
With the outspoken game theorist no longer participating in the talks, investors are betting that it will be easier for the two sides to reach a compromise that will prevent the government in Athens from going bust and crashing out of the euro zone.
In the short term, the move may well help. The Greek government is virtually out of cash, and relations between Varoufakis and his European counterparts had deteriorated to such an extent that his continued presence was a barrier to a deal to release the $7.2 billion in new loans pledged by the European Union back in February, contingent on an agreement for a Greek reform program.
Kicking Varoufakis upstairs—he is staying on as finance minister, and will continue to oversee the negotiations—may well make it easier for both sides to make compromises.
In a lengthy television interview on Tuesday night, Prime Minister Alexis Tsipras expressed confidence that a deal could be reached by May 9th, which is a few days before Greece is due to make a big payment to the International Monetary Fund.
“Despite the difficulties, the possibilities to win in the negotiations are large,” he said. “We should not give in to panic moves.” Tsipras also ruled out calling a snap election, an option that has been mooted recently.
But he did raise the possibility of holding a referendum if Greece was forced to accept terms that went outside Syriza’s anti-austerity mandate.
On the basis that neither side wants Greece to leave the euro zone, I’ve argued all along that some sort of deal would probably be reached at the eleventh hour.
Reports from Athens suggest that it will consist of the Syriza government submitting legislation to enact some of the reforms that the European Union wants, such as the introduction of a uniform value-added tax and the privatization of state-owned assets like ports and airports.
In return, the E.U. may let slip, for now, some of the other things it has been demanding, including changes to Greece’s pension system and labor laws.
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