Sunday, March 18, 2012

No Solution for Greece Outside of the Eurozone

Miranda Xafa makes the point very clear for those who won't see it:
A return to the drachma would be all pain, no gain (Eichengreen 2007). Exiting the Eurozone would only add to the debt burden without resolving Greece’s competitiveness problem, which stems primarily from regulatory barriers to competition, restrictive labour practices, and red tape that raise the cost of doing business. Greece ranks 100th in the World Bank’s “Doing Business” report and 119th in the Heritage Foundation’s Index of Economic Freedom, behind several sub-Saharan countries. Staying in the Eurozone, on the other hand, raises the question of whether Greece’s post-Soviet economy can deflate itself back to competitiveness. The answer is probably not, because real rigidities prevent the adjustment process from working. What Greece needs is what the IMF calls “growth-oriented structural reforms” – greater reliance on market forces and the rule of law. ...

What led Greece into this mess is its ineffective, incompetent, and corrupt political establishment, which viewed politics as a means of providing favours to special interest groups in exchange for vote-buying. If you offer the printing press to this political system, it will just go back to business as usual. It is by cutting off their access to cash, by remaining in the euro, that you can force political change along with economic change.

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