The EuroCrisis – A Cultural Crisis – Part 3: Grexit

The EuroCrisis – A Cultural Crisis – Part 3: Grexit

Having been born and raised in Argentina, which underwent a similar situation Greece is undergoing now in the year 2001, many people ask me if the “Argentinian solution” could be applicable to Greece. The similarities are many, this is true:

1. A fixed currency: the Argentinian Peso was pegged to the USD, which restricts flexibility in monetary policy. A floating currency ensures that, if the exports become less competitive, a devaluation will lower the salaries and help the industry.
2. Unemployment soured: with a non-competitive industry and the application of austerity measures, unemployment soured to 25% (juvenile unemployment reaching 50%).
3. Unbearable sovereign debt: like in the case of Argentina, Greece cannot really make the payments that it should. A series of rescues simply push the situation forward, but once again, austerity measures that have pushed the country into depression ensures that the country does not generate enough surplus to repay the debt, which becomes even larger as interests accumulate.

The solution for Argentina was to abandon the fixed currency and devaluate the peso, which boosted the exports, and to default on the debt, which brought relief to the strangled government’s finances. The money that was “saved” by not paying the debt was invested in a New Keynesian plan which increased government expenditure and revitalised the industry. However, the financial system was destroyed. Even today, in 2016, Argentina is still fighting to go back to the international capital markets, paying one the largest interest rates in the world. Development has a roof of course, if there is no functional financial system. So the solution worked out well in the short term, but had terrible long term consequences. However, for Argentina, there didn’t seem to be any choice at that point. The high unemployment rate and half of the population thrown to poverty led people to the streets and took down the government in December 2001.

So, what is the solution for Greece? The first thing is to acknowledge that it’s time in the Eurozone is over. As a matter of fact, many would argue that Greece should have never entered the Eurozone, since it inflated it’s fiscal situation in order to show numbers that were compliant with the metrics provided by the Euro-leaders. But regardless of that, Greece is just too far away. Bordering Turkey, the Balcans and Bulgaria, if belongs to the Eastern European bloc. Christian Orthodoxy is the main religion, from a cultural perspective making it closer to the other Eastern European countries. So leaving the Eurozone and retaking the dracma as a currency would be a first step. This would make it’s exports more competitive. About it’s external debt, defaulting is NOT an option. What the country needs is re-financing. Fortunately for Greece (this did not happen to Argentina, nobody cared what happened there), Russia is interested in coming to it’s aid. It is clear that if it is to bail out Greece, that would mean that the helenic country should align both politically and economically to Russia. But on a personal level, I believe that would work out just as fine for Greece. It is clear that neither the European leaders, nor the European people, ever wanted Greece in the Eurozone in the first place. Greece, on the minds of Western Europeans, is just another good place to go on vacation.

But Greece is much more than that. Revolution 4.0 brings about again a world of philosophers, a new age of creators. The Greek have had a very long and ancient history, and can surely enlighten our path to a new era of prosperity for humanity. Do not despair people of Greece! Let go of the chains that tie you to a dead region and show us the path to a new tomorrow. We, the people of Earth need you!

Your friendly economist,

Cristian “Nash” Bøhnsdalen.

Source:

http://www.cnbc.com/2015/06/19/putin-russia-has-avoided-deep-crisis-despite-sanctions.html