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Greek debt crisis: Why Grexit is not an option

It is actually proven that undoing a fatal mistake of relying on an overvalued currency does not correct matters. The no alternatives case for the Greek economy on staying in the single currency union is easy to realize after having a close look at its macroeconomic figures that reflect something of an economic collapse.

In fact, the heavy reliance of the Greek economy on services and at the same time its lack of a national productive base  rule out the possibility of achieving growth through the adoption of a devalued national currency. Accordingly, even a write-off of the largest part of the Greek debt would not be able to stimulate the economy in the case that this haircut includes the adoption of a national currency. That is because economic growth can only be enhanced when the economy stands on its own feet. In other words, a competitive production base is a precondition for monetary policy, not vice versa. Unfortunately, the Greek economy is too vulnerable to sustain the shock of steep adjustment to a national currency. Thus, it is certain that such a choice could only extend inequality and devastate the economy for the long term because of the economic isolation it would bring about.



1 Comment

  • Nonsense. The deflationary spiral can only make things worse and continue to make things worse forever until Greece breaks out either via the ECB ending the spiral or Greece adopting the Drachma, and the ECB shows no signs of changing. The shock of moving to the Drachma would be painful, but what is gained by delaying the inevitable? The problem is not an overvalued currency per se, the problem is every year like clockwork it becomes MORE overvalued for the Greek economy. This is the deflationary spiral sucking Greece into a black hole with as much mathematical certainty as gravity.

    John on 14 March 2017 at 5:14am

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