2015 July 11 Saturday
Greeks Need To Give Up On Euro, Bring Back Drachma

Matt O'Brien of the WaPo Wonkblog has written the best summary I've seen so far about how deluded the Syriza Party's leaders were in thinking they had a strong negotiating hand with Germany and the EU over debts and bailout terms: How Greece went from victory to economy-destroying defeat. As O'Brien points out, Syriza has managed to incur most of the costs of leaving the Euro and most of the costs of staying in the Euro by making incredibly bad decisions. This all comes on top of Greece already being in an economic downturn worse than US Great Depression. Not a good time to have bad government decisions. The banking shut-down has caused Greeks to respond in fear the economic distortions have intensified.

Since the northern European countries did an excellent job of insulating their banks and economies from a Greek economic meltdown, massive default, and exit from the Euro zone the Greeks had an incredibly weak negotiating hand. The long

Now that the Greek people have voted όχι (No) to German demands for much more austerity the Germans and their allies in the EU just left Greece hanging with a cut-off of money from the European Central Bank, closed banks and rapidly crumbling economy. When it became clear the Euros weren't going to soften their position the Greek Parliament caved to European demands.

But this cave-in by the Greeks looks like it is coming too late. German finance minister Wolfgang Schäuble is lobbying for Grexit, supposedly as a 5 year temporary measure. A Finnish parliamentary coalition will bring down its government if Finland supports another bail-out. It does not matter whether the Germans are being fair. It does not matter (though it is very interesting) that the Germans and their allies are being very inconsistent about what they claim EU rules allow. Another op/ed by Yanis Varoufakis, former Greek finance minister (pushed out to placate the EU) will not help at all. Give up the Euro. Move past it.

The Greeks ought to rapidly start preparing to reestablish their own currency. They could use debit cards and a modified Euro printed by their own central bank to make the switch. The Greek economy is shrinking rapidly and there is no time to waste. It is hard for businesses to function and foreign businesses literally have to fly in money to pay their workers.

Move on. Don't look back. Get your own currency back.

Share |      By Randall Parker at 2015 July 11 04:43 PM 

bob sykes said at July 12, 2015 5:11 AM:

They need to get out of the EU and NATO, too. The EU hobbles them with all sorts of pointless regulations, and NATO appears determined to get involved with Russia in some sort of shootout.

CamelCaseRob said at July 12, 2015 12:07 PM:

If they got out of NATO, they could zero out their defense spending. But going back to the drachma will be like Argentina breaking their tie to the dollar in 2001 -- an economic disaster.

Jaakko Raipala said at July 12, 2015 2:43 PM:

Rob, Greece has massive defense spending by European standards because it's wary of Turkey. Greece and Turkey have exchanged fire as recently as a few decades ago (with some dead border guards) and if you've been following Turkey at all you've not missed the collapse of the secular, Turk-nationalist, Europe-oriented Turkey and the resurrection of Ottoman imperial ideals. If Greece left NATO then their security situation relative to Turkey would worsen and they would have to invest even more into defense or seek other alliances (which would likely mean Russia and even Greeks understand that alliances with Russia come with a lot of strings attached).

Matra said at July 12, 2015 4:18 PM:

For reasons referred to by Jaako Raipala Russia Firsters calling for Greece to leave NATO are not exactly friends of Greece. American-based Russia Firsters are retards. Why? Because Russia itself wants Greece to stay in NATO (and the EU) as they know Greece can use its position in NATO and the EU to put a break on "anti-Russian" policies. Outside of NATO and the EU little Greece is practically useless to Russia.

CamelCaseRob said at July 13, 2015 10:19 AM:

I just don't see the western powers allowing Turkey to invade Greece. Even if they got out of NATO and stopped military spending. What happened a few decades ago and what can happen now are two different things.

Greece is just to small to be a viable state. It needs to merge with one or more of the states to the north of it. And I don't mean too small geographically, I mean they don't produce enough of anything to be self-sufficient.

Jaakko Raipala said at July 13, 2015 6:15 PM:

Somehow whenever the topic of military power comes up there are always genius commentators who cannot imagine military power meaning anything else than annexing countries. Greece has many ongoing disputes with Turkey that the Western powers do not care about (Washington or Brussels could not care less about control over some specific islands or the size of economic zones on the sea even if Greece as a whole is in a strategically important location) and if Turkey sees that Greece has no military it can simply dictate its terms on any dispute.

The Western powers have done nothing in the past to support Greece in its clashes with Turkey. They did not do much at all during the Cyprus crisis and the Greeks well remember that. They would do nothing at all if Turkey were to decide that it wants some island just off the coast of Turkey that would give them a vastly enlarged economic zone. It's not even that Turks are some born villains as it's easy to sympathize with their position as well - nearly all the islands off the coast of Turkey belonging to Greece boxes in Turkey with a bizarrely small sea zone of control around its mainland territory.

It's one of those situations that have no resolution satisfying both parties and in all such situations the resolution of international disputes simply follows the old logic of strength vs strength. If Greece were to dismantle its remaining strength they would inevitably surrender the resolution of these disputes to Turkey and even the far left in Greece knows that the terms Turkey would dictate would horrify Greeks.

Wolf-Dog said at July 13, 2015 7:03 PM:

Basically the German policy of making it very painful for Greece to exit the euro (and more importantly for Germany, the European free trade zone) was very successful in the end: the Greek government capitulated and agreed even to the ignoble sale of its assets to pay down the debt. As we speak, Germany is dismembering Greece, but the worst is yet to come: it is not the tiny Greek economy (2 % of EU) that matters to Germany, what the Germans want is to scare the other members of the EU to make sure that they do not try to change the rules that give an advantage to Germany.

As for Greece, it is better for them to not only to revert back to their own currency, but to get out of the free trade zone to become competitive. Otherwise they will have to sell all their national assets ad infinitum.

But France and UK each have enormous annual trade deficits against Germany (when measured as a percentage of their GDPs these two trade deficits against Germany would be comparable to the US trade deficit against China, and this is unsustainable for France and UK). But Germany cannot afford to lose this surplus. As soon as there is a disagreement between France and Germany, the EU will be collapsing.


But it will be difficult for Greece to become competitive even after it issues its own currency and imposes tariffs on imports from northern Europe, because Greece lost even its previous know-how in this depression. In fact, most of southern Europe lost their know-hows in the depression because their unemployed work force became obsolete and many of their most educated elite workers immigrated to other countries.

As for the neo-Ottoman ambitions, if the Balkan countries are militarily weakened, which they will be, then the issue will not be just the small Greek islands, but a lot more than that.

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