The Samaras Government by stupendous, sagacious, and painful efforts, and by using “conventional economic weapons,” is pulling Greece out of its economic crisis. For the first time after four years, Greece next week will be able to borrow funds on the international financial markets.
I’m republishing this short reply that took place early in 2012, for the readers of this blog.
By Con George-Kotzabasis
A reply to Bruce Wilder, suggesting default for Greece and Italy as the remedy for their economic crisis.
In serious discussion it is wise to enter it carrying a sieve in one’s hands to separate the wheat from the chaff.
Your crystal clear “efficient calculating machine” that would implement your proposal of default, would be no other than a wise, brave, imaginative, and humane technocrat. So what exactly you have against technocrats? They are OK if they adopt your plan and only transported to Hades in toto for their ‘mortal sins’, if they don’t! Default was and is always an option. The distinguished economist Deepak Lal and exponent of the Austrian School of economics, long ago suggested such a schema. Lucas Papademos and Mario Monti, Prime Ministers of Greece and Italy respectively, both presumably have this option in their arsenal to be used as a last resort if everything else fails. But before they use this ‘nuclear’ option, they must try, and be given the right by all objective analysts and commentators, to resolve this economic crisis by ‘conventional’ means that could avoid a default which would open a big hole in their countries GDP and throw their people into pauperization for decades to come.
In any crisis of serious proportions consensus between the major political parties is the sine qua non for its resolution. This certainly applies presently in Greece. But the dimensions of the crisis are so Gulliverian that only a titanic struggle of will and resolution by its politicians, guided by wisdom, will at least diminish the scale of the crisis. Regrettably, however, there is a dearth of politicians in Greece of the status of Gulliver and an abundance of Lilliputians. Therefore, a different consensus is materializing among eminent economists, that Greece perforce will have to traverse a different course than that imposed by the ECB and IMF.
Deepak Lal, a former president of the Mont Pelerine Society and a prominent exponent of the Austrian school of economics, predicts a Greek default and an exit from the Euro. To avoid a Greek debt default that would lead to a Euro zone banking crisis, a stabilization program has been imposed on Greece by the ECB and IMF. But unlike other similar stabilization programs, Lal argues, two vital elements are missing: a large devaluation and a restructuring of the country’s debt. “The former is precluded by the fixed exchange rate of the Euro, the latter by the external holdings of Greek sovereign debt by European banks.” The alternative program therefore is to impose a large internal devaluation instigating a precipitous fall in domestic wages and prices through a massive deflation. It is impossible however to believe that Greek politics will allow the country to follow such a course, especially when Greece is likely to be left with a debt-GDP ratio of 150%. Hence, Deepak Lal predicts that a Greek default and an exit from the Euro is the most likely path that Greece will follow.