The long and sorry story of the pending bankruptcy of Greece has been playing out for half a decade now. But, living on the other side of the world in Australia, it's been a situation that's been far from front of mind and barely hitting our news headlines.
Last week the Greek people supported their government's stance of not agreeing to the austerity measures that their creditors were demanding.
What does this mean? Should Greece exit the Euro? Will this mean the end of European Monetary Union? This New York Times article is an interesting read and gives some insights into these questions and more...
Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation. Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But ath this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?
