Greece needs a plan B based on quitting the euro
A letter to the editors

Sir, Your editorial exhorting the newly elected Greek government to find ways to work with the troika overlooks the grievous damage that the troika has already wrought on the Greek economy (“Samaras’s challenge”, July 19).

In particular, it glosses over the contribution that troika-imposed hair-shirt fiscal policies, within a euro straight jacket, have made to the 16 per cent decline in Greek gross domestic product over the past three years and to the further 6-7 percent GDP decline now widely forecast for 2012.

"One would have thought that by now we would have learnt how little sense it makes to pursue aggressively pro-cyclical policies in the depths of an economic depression." -Desmond Lachman

One would have thought that by now we would have learnt how little sense it makes to pursue aggressively pro-cyclical policies in the depths of an economic depression. Yet that is precisely what the troika is prescribing for Greece right now. Not only does the troika want Greece to correct the budget slippages due to a deeper than expected economic contraction in the current year, but it also wants Greece to cut public spending by about 5½ percentage points of GDP in 2013 and 2014.

To be sure, Greece has no realistic alternative but to correct its public finance imbalances. However, Greece’s tragic experience over the past two years would suggest that to do so within the euro straitjacket is a sure-fire recipe for a deepening and a prolongation of the economic depression in which the country already finds itself. And experience would also suggest that any such deepening would seriously undermine the very effort of correcting the country’s public finances.

If ever there were the need for a plan B it has to be in Greece. The central element of any plan B for Greece has to be the country’s exit from the euro. For such a move would afford the country with the means to promote its tourism and trade sectors as an offset to the negative effect of fiscal tightening on the country’s level of output and employment.


Desmond Lachman, American Enterprise Institute, Washington, DC, US

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Desmond
Lachman

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 27
    MON
  • 28
    TUE
  • 29
    WED
  • 30
    THU
  • 31
    FRI
Monday, October 27, 2014 | 10:00 a.m. – 11:30 a.m.
State income taxes and the Supreme Court: Maryland Comptroller v. Wynne

Please join AEI for a panel discussion exploring these and other questions about this crucial case.

Tuesday, October 28, 2014 | 9:30 a.m. – 12:15 p.m.
For richer, for poorer: How family structures economic success in America

Join Lerman, Wilcox, and a group of distinguished scholars and commentators for the release of Lerman and Wilcox’s report, which examines the relationships among and policy implications of marriage, family structure, and economic success in America.

Tuesday, October 28, 2014 | 5:30 p.m. – 7:00 p.m.
The 7 deadly virtues: 18 conservative writers on why the virtuous life is funny as hell

Please join AEI for a book forum moderated by Last and featuring five of these leading conservative voices. By the time the forum is over, attendees may be on their way to discovering an entirely different — and better — moral universe.

Thursday, October 30, 2014 | 2:00 p.m. – 3:00 p.m.
A nuclear deal with Iran? Weighing the possibilities

Join us, as experts discuss their predictions for whether the United States will strike a nuclear deal with Iran ahead of the November 24 deadline, and the repercussions of the possible outcomes.

Thursday, October 30, 2014 | 5:00 p.m. – 6:15 p.m.
The forgotten depression — 1921: The crash that cured itself

Please join Author James Grant and AEI senior economists for a discussion about Grant's book, "The Forgotten Depression: 1921: The Crash That Cured Itself" (Simon & Schuster, 2014).

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.