Tuesday, 9 March 2010
Greece would NOT be better off outside the Eurozone!
It is an interesting dimension of the ongoing Greece saga how many people think that it would be better for Greece to be outside of the Eurozone at the moment. They seem to suggest that if the country still had its good old drachma, it could now devalue, and would have an easier time adjusting than with the eurozone rules.
I think this is not quite right. First of all, if Greece would not have been in the zone in recent years, it would not have had access to cheap credit, and the few years of boom would not have taken place (which, in spite of the excessive credit boom, were perceived to be good years by the Greek population).
Secondly, devaluation is not necessarily a painless alternative to fiscal cuts. First of all, it makes import prices higher, something that the whole population would suffer from. Secondly, it would wipe out people's savings. Thirdly, it would not save Greece from carrying out efficiency oriented, meritocratic reforms of its state apparatus, and attempt to control 'visma', the endemic corruption which is characteristic of business and state relations.