Four quick thoughts on the Grexit

Last updated on: July 6, 2015 at 8:54 am by Jane the Actuary

Four quick thoughts on the Grexit 2015-07-06T08:54:53-06:00 Jane the Actuary

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Greece voted “no” in a referendum over the weekend that asked about whether to accept a specific austerity/bailout package, but was taken as a vote on austerity in general. I am not an expert on the topic, but have four comments for your, well, comments.

1) It is wishful thinking to imagine that, had Greece only stayed out of the Eurozone, they could have issued drachma-denominated bonds and avoided all this difficulty by just printing more money. Remember that these are IMF loans, not just Greece-issued debt, and the whole reason why Greece has IMF debt is that they were unable to issue bonds on their own at a reasonable interest rate, due to the overall economic situation and the fact that they had been cooking the books. So you’re “what-if” would really have to be to imagine that Greece could have not even bothered issuing bonds, but just printed money — and I don’t know of any fantasy world in which a financially-shaky country just turns on the printing press to fund its government spending without ill effects.

2) It’s true that if they had the drachma, they could just devalue it, and hope to improve their economy via boosting their exports. But this ought to have happened, indirectly, anyway: that is, workers should have seen pay cuts which would have enabled companies to undercut competitors elsewhere for export goods, and to compete for more tourists in-country. Devaluation is just a shortcut that is more invisible to workers and doesn’t require their consent, but the net result is the same.

3) It is, admittedly, unfair that Greece must now simultaneously deal with the influx of refugees/migrants/illegals from North Africa, which simultaneously burdens them economically and hampers their tourism industry.

4) Here’s a potential outcome that I’m just going to throw out there: Greece as a “secondary user” of the Euro. Sure, Greece justly deserves to be kicked out of the Eurozone, but would they really be able to switch to the drachma and have the rest of the world accept it as a means of exchange? I would expect that the Euro would still be the de facto means of exchange, the local “hard currency,” if you will, even if the Greek government issues drachmas and requires that they be accepted for payment within the country, and that, in the extreme case in which they can’t compel the drachma to be accepted as having any value, they would use the Euro in a de facto manner, in the same way in which Zimbabwe and Ecuador use the U.S. dollar as its currency, with no control over monetary policy, but better than the alternative.

And: yes, I feel bad for Greeks, individually (I have some Greek ancestry but no connections to anyone there), though it’s clear that they tried to will their way to the lifestyle of a wealthy country without the resources to support it. And I’m also hoping that this is all resolved before, say, June or July of 2016, because my husband’s travel has accrued a good number of frequent-flyer miles.

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