Certainly, it would be traumatic: there would be an immediate devaluation; the value of savings would tumble; the price of imported goods would soar. But Greek exports would become cheaper and labor costs even more competitive. Tourism would likely boom. And regaining control of its monetary and fiscal policy for the first time since 2001 would give Greece the chance to deal with its economic woes. Other countries that have endured sudden devaluations have often found that long-term gain outweighs short-term pain. When Argentina defaulted and devalued the peso, in 2001, months of economic chaos were followed by years of rapid growth. Iceland had a similar experience after the financial crisis. The Greek situation would entail an entirely new currency rather than just a devaluation. Weisbrot says, “It could work. You have to go through a crisis, but then the economy would recover, and probably more quickly than people expect.”
It’s Time for the E.U. to Stop Bullying Greece
But, as the Greek economic commentator Nick Malkoutzis pointed out earlier this week, it almost seems as though some prominent E.U. leaders are determined to exact retribution for uppity behavior by Tsipras and, especially, Varoufakis. “The solution here does not lie just in the Greek side getting a crash course in European diplomacy and being more circumspect in what it says,” Malkoutzis wrote. “It also requires true Europeans on the other side to quash any feelings of punishment or prejudice that are stirring within the corridors of power in Brussels and other European capitals.”
.. It’s too early to predict how these talks will turn out. But for Syriza to be able to sell an agreement to the Greek public, it will need to show that the negotiations have been carried out in good faith, and that a significant break with the past has taken place. If the E.U. is seen to be bullying the Greek government into capitulating, it will spark a public backlash that is likely to end with Greece leaving the euro zone.
What Greece Won
To make sense of what happened, you need to understand that the main issue of contention involves just one number: the size of the Greek primary surplus, the difference between government revenues and government expenditures not counting interest on the debt. The primary surplus measures the resources that Greece is actually transferring to its creditors.
.. The question instead was whether Greece would be forced to impose still more austerity. The previous Greek government had agreed to a program under which the primary surplus would triple over the next few years, at immense cost to the nation’s economy and people.
.. France can borrow for five years at an interest rate of 0.002 percent. That’s right, 0.002 percent.
Europe’s Greek Test
First, about those myths: Many people seem to believe that the loans Athens has received since the crisis broke have been subsidizing Greek spending.
.. Or to oversimplify things a bit, you can think of European policy as involving a bailout, not of Greece, but of creditor-country banks, with the Greek government simply acting as the middleman — and with the Greek public, which has seen a catastrophic fall in living standards, required to make further sacrifices so that it, too, can contribute funds to that bailout.
.. Is Germany really prepared, in effect, to say to a fellow European democracy, “Pay up or we’ll destroy your banking system?”
.. So what’s needed is simple: Let Greece run smaller but still positive surpluses, which would relieve Greek suffering, and let the new government claim success, defusing the anti-democratic forces waiting in the wings. Meanwhile, the cost to creditor-nation taxpayers — who were never going to get the full value of the debt — would be minimal.