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
  • 20
    MON
  • 21
    TUE
  • 22
    WED
  • 23
    THU
  • 24
    FRI
Monday, October 20, 2014 | 2:00 p.m. – 3:30 p.m.
Warfare beneath the waves: The undersea domain in Asia

We welcome you to join us for a panel discussion of the undersea military competition occurring in Asia and what it means for the United States and its allies.

Tuesday, October 21, 2014 | 8:30 a.m. – 10:00 a.m.
AEI Election Watch 2014: What will happen and why it matters

AEI’s Election Watch is back! Please join us for two sessions of the longest-running election program in Washington, DC. 

Wednesday, October 22, 2014 | 1:00 p.m. – 2:30 p.m.
What now for the Common Core?

We welcome you to join us at AEI for a discussion of what’s next for the Common Core.

Thursday, October 23, 2014 | 10:00 a.m. – 11:00 a.m.
Brazil’s presidential election: Real challenges, real choices

Please join AEI for a discussion examining each candidate’s platform and prospects for victory and the impact that a possible shift toward free-market policies in Brazil might have on South America as a whole.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.