The Future of Greece

Following the recent election of Syriza and their leader Alexis Tsipras, Greek banks suffered their largest one day drop ever. There’s fear around Europe that a “Grexit” - a Greek exit from the eurozone is imminent. While Tsipras assures that is not the case, he is abandoning the austerity policies that are a condition of bailouts Greece has received to help pay off their debts to European banks. Tsipras also wants to renegotiate Greek debt, and hopefully have some of it written off; German Chancellor Angela Merkel has dismissed this ideas.

However, it is actually quite reasonable for the Greeks to wish to have some of their debts relieved. Moreover, there exists a compelling case for Greece exiting the eurozone. With regards to debt relief, what many people often forget is that the Greeks should not be entirely at fault for their mismanagement of funds. In particular, there exists a culture in Europe to blame the Greeks, and see them as the sole ones responsible for fallout of their own near collapse in the late 2000s. Ultimately, the Greeks aren’t the only ones to blame. The German, Dutch, and various other European banks which loaned money to Greece should atleast be equally at fault. They made a risky investment in Greece, yet they aren’t being forced to pay any consequences. If Greece repays all their debt, the European banks get out of this mess relatively scot-free. The Greeks and the banks should share the responsibility, and as such Greece should be able to renegotiate much of it’s debt.

Furthermore, if Greece were to exit the eurozone it would do a great service to their economic stability and future prosperity. We would see the Drachma 2.0, a currency which undoubtedly would be far weaker than the Euro. Greece would then gain a great comparative in the European market, which they still could have unlimited access to. With a weaker currency, the cost for European business owners to develop operations in Greece would be far lower: investment in Greece would increase. With a weak Drachma, Greece’s tourism industry would become far stronger as well. Greece would now be seen as the place to go in Europe because of how “cheap” it would seem relative to other nations in the region. Giving Greece greater ability to control it’s own economy by giving it a central bank which can, if needed, print more Drachma’s to pay off Greece debt, increases stability in the long run because then fiscal policy in Greece would be solely based upon Greek interest and wouldn’t have to be part of a broader European policy.

By,

Peter Koczanski

 

Citations: 

http://ca.reuters.com/article/businessNews/idCAKBN0L40SI20150131

http://www.economist.com/news/briefing/21641251-syrizas-success-increases-risk-grexit-and-will-embolden-anti-austerity-parties-across

http://www.spiegel.de/international/europe/greek-election-makes-euro-zone-exit-real-possibility-a-1015907.html