The question is becoming more relevant as to when, not if, Greece will quit the euro zone.
For the benefit of the Greeks, the sooner it leaves, the better.
The election outcome on Sunday has shown a divided nation, marred by social unrest, hopelessness voters’ anger over the austerity programme. A third attempt is underway to form a coalition government because the election has failed to produce a majority outcome for any political party. If the new government can’t be formed, due to sharp differences over how to move the country ahead, a new election will be called in June.
Under the bailout agreement with the International Monetary Fund and the European Union, Athens is due to pass new austerity measures covering 14.5 billion euros next month – part of the cuts required to qualify for bailouts worth a total of 240 billion euros. The social unrest and the unpopularity of the previous government reflect the reality that Greece will not be able to meet these tough obligations.
The mood in Greece is similar to that in France, where the voters kicked out Nicolas Sarkozy and brought in pro-growth socialist candidate Francoise Hollande as new president of the republic.
Policy-makers at the European Union and the European Central Bank are now casting doubt on whether Greece can continue to stay in the euro. “If Greece decides not to stay in the euro zone, we cannot force it,” German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels yesterday. “They will decide whether to stay in or not.”
After 386 billion euros in aid pledged for Greece, Ireland andPortugal, 214 billion euros in ECB bond purchases and another trillion euros in low-interest loans for banks, plus 17 high-level crisis summits, Greece’s political chaos demonstrates that throwing good money after bad isn’t working. The euro zone is on the verge of a break-up.
If Greece decides to stay in the euro, it will have to undertake radical reforms, reduce its debt and cut back spending. This would ensure forthcoming loans to keep the country afloat. But doing so would further fuel the social unrest. This course is viable if Greece can regain a degree of confidence and achieve a recovery in economic growth.
But the prospects of economic growth are not on the horizon because Greece is not an export-led economy. The international economic environment is rather weak, making it almost impossible for indebted Greece to recover via external demand. If it prolongs its stay in the euro, without the prospect of growth, it will risk further damage to the extent that it cannot control its economic destiny.
When Thailand devalued the baht and faced an economic breakdown in 1997-1998, it sought an IMF bailout. It achieved economic stabilisation because the weak baht spurred the export sector, which was the backbone of the Thai economy. International reserves were gradually rebuilt from the current account surplus to help pay off the foreign currency debt.
On the contrary, if Greece decides to quit the euro, it will risk complete bankruptcy, international trade disruptions and a cut-off from the international financial markets. Many analysts now admit that this has become a more viable option for the Greeks.
The following are what the Greeks should be doing to save their country:
First, quit the euro and go back to the drachma. The lesson is clear that countries should never have abandoned their printing presses. If a country loses power to print is own currency, it will lose its sovereignty.
Second, announce a moratorium on all debts.
Third, examine the existing resources – financials and non-financials – to see how they can be properly managed or fairly distributed among the population. It is time for the haves to sacrifice.
Fourth, raise money to keep the government going by selling or leasing some national assets.
Fifth, adopt the economic sufficiency, Greek-help-Greek policy. Already, the Greeks are helping each other through community sharing and inventing ad hoc payment systems, or bartering to keep their daily activities going.
There is no other way out for the Greeks, who must be able to live on their own resources, rebuild the economy from scratch, get rid of the big banks and replace them with community banks, and learn how to share during this time of crisis.