Dani Rodrik on Greece

“When Argentina defaulted on its debt a decade ago, the country became a pariah in the eyes of foreign bankers and bondholders and was shut off from international financial markets. Yet its economy recovered quickly and experienced rapid growth thanks to a large boost in external competitiveness provided by a vastly depreciated currency. The lesson is that default can be the better option when the alternative is years of continued austerity.” (In the New York Times, here).

Perfect good sense, and I would add that default and devaluation is not only a better alternative: it is the only way to get the Greek economy out of the current mess and back to growth, and international financial markets after a while.

But then – illogically – Rodrik seems to deplore a Greek exit from the euro which would “unleash huge uncertainty about the rule of the game”.

Fortunately, he nevertheless concludes – correctly - that the current strategy of other European governments aims at “protecting German and other European creditors and bondholders while Greek workers, retirees and taxpayer (and also add German and French ones, JJR) pay the bill. This makes no sense economically, and will not work politically.”

I agree. But why did it take so long for most economists to recognize that an exit from the euro was the only durable solution for the Greek economy?  One year ago it was already quite clear (see my May 5, 2010 interview in the newspaper Le Monde, downloadable on my home page).