Monday, July 18, 2011

Greece Again: Acknowledging the Obvious

Simple truths do percolate, in the end, through the political-media muddle. See for example today’s Financial Times article with the title: “Eurozone exit could restore Greek competitiveness”. Obvious from an economic point of view. But interesting nevertheless because it reflects the shift of emphasis of politicians’ aims, from the official motto of “saving the euro” to a recognition that some form of Greek default is already a fact, and that no durable solution, i.e. a return to growth, is possible for the Greek economy unless a major devaluation, i.e. an exit from the euro, is adopted.

That said, a warning is addressed to other potential defectors in the article’s subtitle: “But leaving the club may be much harder than it was to get in.” Obvious too: the membership in the currency cartel – I mean the “club” – has so deteriorated the Greek public finances and economy that the cost is already built in the current situation and has to be met by someone, foreign creditors, foreign taxpayers, and Greek workers and taxpayers. This is simply the characteristic of all political rents: they benefit a few in the present, and burden many others in many following periods.

Let’s keep in mind, however, that exiting the euro will produce a benefit, not a cost, to ordinary Greek wage earners and taxpayers.    

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