In her euro-hegemonic role Germany failed to properly handle the Greek Crisis. What economics have been whispering among themselves after the scandalous Brussels Agreement of July 13th is now on the public discussion. One of IMF’s former European bailouts official, Ashoka Mody made it very clear in his article on Bloomberg on Friday morning: It’s Germany not Greece that has to leave the eurozone.
Germany not Greece should Exit the Euro
“The latest round of wrangling between Greece and its European creditors has demonstrated yet again that countries with such disparate economies should never have entered a currency union. It would be better for all involved, though, if Germany rather than Greece were the first to exit.
After months of grueling negotiations, recriminations and reversals, it’s hard to see any winners. The deal Greece reached with its creditors — if it lasts – pursues the same economic strategy that has failed repeatedly to heal the country. Greeks will get more of the brutal belt-tightening that they voted against. The creditors will probably see even less of their money than they would with a package of reduced austerity and immediate debt relief.”
Now the idea of a member country exiting the eurozone is not a taboo anymore. But would Greece leave the euro, it will be “possible followed by Portugal and Italy in the subsequent years, the countries’ new currencies would fall sharply in value, leaving them unable to pay debts in euros, triggering cascading defaults. Although the currency depreciation would eventually make them more competitive, the economic pain would be prolonged and would inevitably extend beyond their borders.
“But if, however, Germany left the euro area […] there really would be no losers,” Mody notes and explains his argument:
“A German return to the deutsche mark would cause the value of the euro to fall immediately, giving countries in Europe’s periphery a much-needed boost in competitiveness. Italy and Portugal have about the same gross domestic product today as when the euro was introduced, and the Greek economy, having briefly soared, is now in danger of falling below its starting point. A weaker euro would give them a chance to jump-start growth. If, as would be likely, the Netherlands, Belgium, Austria and Finland followed Germany’s lead, perhaps to form a new currency bloc, the euro would depreciate even further.
The disruption from a German exit would be minor.
Perhaps the greatest gain would be political. Germany relishes the role of a hegemon in Europe, but it has proven unwilling to bear the cost. By playing the role of bully with a moral veneer, it is doing the region a disservice.” ( full article Bloomberg).
According to Business Insider, Ashoka Mody was an assistant director at the International Monetary Fund (IMF), responsible for some of the bailouts required during the euro crisis. In his time at the IMF, Mody was in charge of the IMF’s Article IV consultations with Germany — those are the institution’s regular check-ups on each country’s economy. He was also responsible for engineering the IMF’s contribution to Ireland’s bailout.
PS I also agree that GEREXIT sounds much better than GREXIT as Greece cannot afford this game.
Yup the Euro-nations and Germany would win greatly if it would abandon the Euro, most other countries just can’t compete economically, but that is ooooooold news.
The Eurozone negotiations over the weekend are recent news. They indicate the opposite — that the vast majority of the members want a Eurozone with strict rules. There are ways to achieve competitiveness without deflating one’s currency.
I should add that it was not only rich Eurozone countries that stood for robust rules. Many are poorer than Greece (Estonia, Latvia, Lithuania, Slovakia, Malta, etc.)
We all know the pathetic satellite countries that politically support Germany. Most of them also supported Hitler.
Xenos do you have a kind of subsession with germany? Every comment
you spill your german hate.
Nobody forces greece to take the money. Just leave the euro zone and begin to rebuild greece from scratch.
Our infrastructure here in germany gets really bad meanwhile, we’d better invest the money in our schools and roads and not dropping it into a black hole full of german haters spilling nazi references.
You cannot drive a country economicaly successfull with one million civil servants on a population of only ten million. You have to change yourselfes, the “fat times” are definetely over.
At the moment a country of just ten million people terrorizes the complete eurozone, because you won’t accept change is neccessary.
he is not even Greek
The saying that the “fat times are over” was made by proles against rich bastards and not the other way round, you’d better watch that movie again as you didn’t get it, just like your too old “facts”: In 2009 Greece had 900.000 and on January 19 2015 only 650.000 civil servants, meanwhile it will be less.
You need “our infrastructure” to gas the whole planet and 1936 was the nicest year ever, as your government forced cyclists to put lights on.
Security? Pah, before 1936 the law forced cars to drive carefully but that was bad for selling cars and so this law was made to boost and it boosted the Beetle into records of selling numbers.
If you need money for schools why don’t you take it from the rich, the rich who need qualified people to produce more crab? It’s cheaper to get qualified workers from run down South-European countries and they are also good to let the statistics regarding unemployment look better.
Keep telling yourself and everyone else willing to listen that Greece’s problems are typical of the whole eurozone (minus Germany), and that the only reason anyone would be against Greek profligate economic policies is that they are covert Nazis. The facts point otherwise.
There clearly is a difference in historical experiences, expectations and even public discourse narratives within the eurozone. I believe, though, that the position of different eurozone member states during the recent negotiations provides a strong counter-point to your position.
It was not just Germany that insisted on applying eurozone’s robust rules, it was the vast majority of the eurozone members. The position was also not unique to the richer nations like the Netherlands, Belgium, Austria and Finland, whom Prof. Mody mentioned as potential Germany followers. (In fact, Austria was one of the few countries that was more supportive towards Greece’s eurozone membership). There were also a number of states that are smaller and poorer than, or nearly as poor as Greece (Estonia, Latvia, Lithuania, Slovakia, Slovenia, Malta), who apparently share Germany’s desire to have a strong euro currency that they had signed up for when joining the eurozone. Their position should not be lightly dismissed as being subservient to Germany.
Let’s consider Estonia as an example. Ever since introducing their own currency kroon in 1992 they pegged it to the to the Deutsche mark at the rate of 8 to 1 in a currency board arrangement. When Germany switched to the euro the Estonian peg followed until Estonia joined the eurozone on January 1, 2011. The Estonians consciously chose stability of their currency over the flexibility to deflate their way to competitiveness. Moreover, they have shown impressive economic growth over that period. Estonia’s GDP per capita measured in US dollars was 4,25 times lower than Greece’s in 1995 (the first year I was able to find data for on the World Bank site). They continuously shortened the distance every year since (except during the economic crisis period 2008-2010), despite the fact that Greece inflated its economy through excessive borrowing while Estonia has the lowest debt-to-GDP ratio in the whole EU. In 2014 the difference between Estonia and Greece was less than 10%, and there is a good chance that Estonia will exceed the Greek GDP per capita this year. Estonians cherish the stability of their currency so much, that they are even willing to pay the price of lower level of social benefits, having _average_ pensions lower than the _lowest_ Greek pension at the moment.
There are many other examples of countries preferring a strong currency. For example, even though Cyprus was more supportive of Greece in the recent negotiations (due in part to their long-standing ethnic, political, economic and defense relationships), they have long found a way to have sustainable high-income economy in the Mediterranean region without deflating their currency. The poorest fellow EU member-state and Greek neighbor to the North Bulgaria has been in a currency board arrangement similar to Estonia’s since 1997, after a bout with hyperinflation. Despite suffering from some of the Greek structural ills and a slow economic growth, no political force in Bulgaria is suggesting to abandon the euro peg, and the government is starting to prepare for a future eurozone membership. Anecdotally, even some of the Greek establishments in the North started accepting Bulgarian currency over the past few weeks.
Clearly, weaker currency can help competitiveness on the margins. However, there are other and better ways to achieve it. To recycle Angela Merkel’s statement, “If there is a will, there is a way”. Weakening the already established euro in order to allow some countries to delay and avoid absolutely essential structural reforms might not be worth it. It is also likely contrary to the desire of the vast majority of the eurozone member-states.
Are you being paid by the word?
I wish I was paid at all for posting here 🙂
No, I am simply trying to write down the facts and the arguments as I see them in order to have a meaningful discussion.
ehrm…. issue of “pay small fee for using this platform’s server” still open
His input-Pulitzer is too stupid to see that the banks on Cyprus were filled with fresh Greek money and he thinks that competitiveness is achieved by raising VAT from 9% to 23% plus the VAT on islands – except from the islands which are full with refugees, the German companies need as competitive slaves to construct their new hotels plus ferries to and from Turkey to and from their other hotels.
He will make profit when the Greek islands get abandoned, be it sell-out for companies or sell-out for the little house at the sea; the most secret motivation of thousands of civil servants in Brussels.
Plamen, I partially agree with you : some discipline must exist. The problem is : many of these rules and “essential structural reforms” are fake. And let us remind : how big is GDP growth in Bulgaria since let us say 2008 and how big is it in China , Argentina or Nigeria. If you look at it (maybe 1 % in Bulgaria and 5-8 % in those countries), you will see my beloved story : nothing is so simple.
Yes , it means that in last seven years Bulgarians became 7 % richer with all the discipline, and the others – for example 50%. It makes a difference.
nothing is so simple: of course not, but generalizing and comparing apples + oranges is the best simplified example from my Big Fat Greek Wedding. a comedy, that is.
Something is wrong in Europe – this is the only continent without economic growth (ok, just a generalization – but if we come into the data, it looks like this). By the way , I do not know what is the reason. But in any case, I would not praise these “structural reforms” too much.
In Estonia it works… but I suppose not euro, but a unique tax system- Estonia with 1,4 million people can be a tax heaven and … in some regards it is (companies do not pay income tax , only tax on dividends). But I doubt that it can work in bigger countries.
Scrapping the 30% VAT discount on islands plus raising VAT on hotels and restaurants will change a lot and makes Greece much more “competitive” for Italy, Spain and Portugal as their tourism now will explode. Greek family-businesses all will die so that TUI, Neckermann, Lufthansa, Fraport and Thomas Cook can buy cheap sweet little guesthouses and tavernas but before they will hire any former owner there must be even more structural “reforms”, as we all know that mini-jobs are still non-competitive, German companies will only hire for under 1 Euro and who thinks this is slavery can give them a tip.
Enjoy Greece – Give your slave a tip!
Reforms that make the rich richer and normal life miserable are not reforms at all, unless one is not a by Orwellian language trained Stalinist like Merkel
I agree. There is a lot of self-interest in the “reforms” that are not reforms being forced onto Greece, along with the fact that all the Memoranda are basically money-collecting exercises by the Troika (and especially Germany). There is no interest in reforming the Greek economy at all: this is just a pretence for political reasons.
Money dictates. May be Malta is poorer as it’s facing lots of refugees that fortress Europe forces to stay there, but the other states all have social welfare and the food is cheap.
That these people are poorer than Greeks is the same capitalist lie like “Greece’s interest is oh so low”, because if Greece gots to pay interest for 50 years instead of 30 years the share of “debt” that is interest will rise from 75% to 85% but I guess this is simply to complicated for people who cash in and only people who have to pay will get it.
Recently, I had reason to check the number of refugees arriving in Malta, Italy and Greece. We all thought that there was a terrible problem with the Maltese politicians whining endlessly etc, so here are the real figures for Jan-Jun 2015:
Italy 67,500
Malta 94
Greece 68,000
Spain 1,230
I think we can all see from this how pathetic and lying politicians are, and the country with the biggest problem gets fuck all help.
Brrr , this is a real horror. Greece has too many problems with closed banks etc and cannot complain about refugees. But the numbers look terrifying.
Who is “complaining”? The Greeks who together with tourists help the refugees on Kos and Lesbos against the hunger?
German Goebbels-Media and politicians blackmailing Greece with starving refugees, Mr. anti-social Gabriel wants to send the German Caritas to Greece but 1st he can’t send them as they don’t receive German orders and 2nd they are active in Greece since 2013.
The main problem is that they cannot stay on the small islands and come to Athens and Salonika, where there is little social support. This could benefit Chryssi Avgi — with the right wing intolerant Greeks in some areas. But so far, the Greek people are showing a lot of solidarity with what are primarily refugees from Syria and Afghanistan. (There are some Pakistanis, Bangladeshi, etc who are seeking a better life, rather than fleeing war)
I labeled these countries as “poorer” than Greece based on the GDP per capita comparison (public data from the World Bank web site). You are correct that the food is more expensive in Greece (104% of EU average according to 2012 Eurostat data) compared to Slovenia (98%), Malta (97%), Estonia (86%), Latvia (85%), Slovakia (85%), and Lithuania (75%). However, the food prices in these countries are not as much lower compared to the Greek prices as their incomes are. For example, Estonia’s GDP / capita in 2012 was 31% lower than Greece’s, while the food prices were 21% lower. Furthermore, their social welfare system is even less generous. Estonia’s average pensions at 350 euros / month are roughly half the Greek pensions.
Your point also brings a very good question: Why Greek cost of living is so high? I can understand the food and beverage prices in Cyprus might be higher (109% and 114% of EU average) because it is a relatively wealthy island-nation separated by 75 km of sea from the closest and very unfriendly (to say the least) neighbor (Turkey). However, Greece’s neighbors have some of the lowest food prices in Europe, with fellow EU member Bulgaria having food costs at 67% of EU average. (The other Greek neighbors to the North have even cheaper food). There are no customs duties between Bulgaria and Greece; the transportation costs are also low. (Thessaloniki is just 110 km from the Bulgarian border). I understand the store clerk salaries are higher in Greece, but that alone cannot explain such a high cost differential. My guess would be: there are structural differences that prevent the competition between stores in Greece from bringing the prices down significantly. Any thoughts?
‘Estonia’s average pensions at 350 euros / month are roughly half the Greek pension’ – we had this issue before: pension funds in ex communist countries are very young, remember?
Just like unemployment allowance pensions are not part of social welfare as the workers had to pay insurance for it all their live; it’s also insurance-fraud to cut it.
Public assistance is social welfare and this unlike Greece all these states have, they pay for rent, food and healthcare and if they wouldn’t Germoney would be floated by its people.
GDP per capita is completely the wrong measure. You need to use quality of life indicators (outcomes) from the UN or World Bank. Generally, quality of life in Greece in recent years has dropped below most of the EU and is much lower than the previous 25 years in Greece. However, income distribution has much worsened with the Troika shit, and arguably has taken Greek quality of life back not to the 1980s but to the pre-Papandreou era of the 1970s.
BTW, I compiled such data across 129 countries for publication in 1990, before the UN started doing so. I do know what I am talking about, in contrast to the IMF and Troika economists who are mostly pen-pushers. (I remember some of them as students — very conventional and boring people.)
In answer to your question about cost of living: don’t waste your time thinking about it. These are structural parameters that reflect historical components and vary widely: the Greek costs reflect increased GDP over the last few decades. It is well understood in the economics literature that European prices are “sticky downwards” and flexible upwards, in contrast to the USA. This is also cultural, but also related to the structure of wealth and employment in the USA: crudely, one might claim that the massive reserve army of surplus (illegal and indigenous) cheap labour in the USA pushes all prices and wages continuously lower. (Of course, this is what the Troika intends for Greece — to enforce poverty wages and an oppressed population analogous to illegal immigrants in the USA.)
But then Germany would not benefit from a weak currency and so would have much less exports, causing its GDP to contract. Germany needs to be part of a weakened Euro for this reason.
This is Schäubles plan of the Uber-European core nations and EU’s Arse in the south
If Germany left the euro , Austria, Nederlands, Finland , and other coubtries in the north would follow.
Spain Portugal, Greece – the indebted countries -would stay in euro.
Euro would loose value dramatically.
Inflation would follow.
France might be forced to leave also.
They would not want to belong to a block of heavily indebted countries.
Is it feasible a monetary union between countries that now had no territorial contiguity ? Greece and Portugal ?
I doubt it.
Euro would fall apart.
that’s why Prof Werner proposed in recent post here: member states should cancel the EURO treaties. They scheme does not work like that.
Why destroy something that was already established and works for the vast majority of the members?
You should take up comedy as a career. But I would advise against economics — clearly you have no aptitude.
Why? For the kids if they can afford holidays! As it’s a lot of fun for little kids to get introduced into different cultures by looking at strange money and may be teaches respect also.
Add to the list of countries which like the common currency as it is (in no particular order): Belgium, Malta, Estonia, Latvia, Lithuania, Luxembourg, and Slovakia. I believe that Cyprus, Slovenia, Ireland, and Italy will not want to leave the eurozone either.
Lastly, I doubt that Spain would want to do it as well, given that they had to go through really tough times to get back to economic growth (which hopefully will start reducing their high unemployment). I am not sure about Portugal.
What is most ironic is that at the end of the day Varoufakis and Schlaube agree.
I think both believe that inside the euro Greece has no chance.
Both believe that Greece should leave the euro.
Schlaube also hints that outside Euro it might happen a debt pardon..,but not inside it.
The obly divergence was that Varoufakis wanted a debt pardon inside euro..,and Schlaube refused it..,
Besides that they agree.
Tsipras instead belongs to the Hollande club that completely excludes the idea of Greece outside Euro.
The exit of Germany from the euro would be of great benefit to southern Europe, provided that a credible plan and economic anchor could be put in place. The power of silly like far right countries like Finland and Holland would be negligible, and they would just have to toe the line.
The major problem with the idea is, of course, that Germany could never accept it. The German politicians know full well that they are parasites on the body of the eurozone, and on its own the German economy will deteriorate: their R&D is poor, their domestic demand is zero, and wages are not high and will have to be reduced. So, no, the Krauts will not leave without being evicted.
What about to destroy USD because some states are more and other less competitive 🙂
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But on the other hand, may be some countries from north (not only Germany) will create strong currency and leave PIGS with Euro.
This must be the most ignorant and stupid comment posted on the entire web about the situation. if you don’t understand the difference between the US $ regime and the eurozone, then you should not post a comment.
OOO Genius Xenos, he even knows what other people do/don’t understand 🙂
Do you have some arguments? Probably not.
Yes, like all teachers or professors I can see very easily how much someone understands of a topic on which I am competent. It is very clear that you understand nothing about economics.
Pigs eat swine but states can never be “competitive”.
Just like it makes no real difference if the fund to pillage Greece is located in Athens or in Luxembourg it makes also no difference if exploitation is legalized by Euro or Drachma if the people are still slaves to the “markets”. There will be no freedom if the system of money, sell and buy and buy and sell and the dogma of import/export will not left behind. But for sure again the same people that used the complicated situation from Drachma to Euro to get richer will use the other way round even more brutal to exploit people. And if one listens closely to the rich people who promote Grexit all the time one fill figure that these idiots also tell the people that Germany exports olive-oil to Greece