Financial Stability News

Flashing news about financial stability and central banking

Better for Greece to default

Marshall Auerback argues in this post on Naked Capitalism today that it will be better for Greece to default than to accept the deal on offer. He notes that Germany may indeed have come to the same conclusion:

Politically, of course, the Merkel government can’t actually come out and advocate a Greek default or, indeed, outright expulsion from the euro zone. Far more politically astute to promote fiscal austerity on top of yet more fiscal austerity, (even though that is certainly not winning Mrs. Merkel any popularity points in Greece), until the Greeks themselves scream “Uncle!” and default outright.

It would certainly be messy, but he notes that

With a super-cheap exchange rate, Greece would be a Mecca for retirement homes, research hospitals, trans-European liberal arts colleges, and maybe low-overhead software startups. Plus, a permanent home for the Olympics. It could live happily ever after, as Florida does, on the pension income of the elderly and the beer money of the young.

It is difficult to judge which way will prevail, but surely anything is be better than the current austerity program that, combined with a totally unrealistic exchange rate, will keep Greece on its knees for years to come.

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