Signs of the impending “Grexit”?

Lynne Kiesling

I just heard a potential sign of the impending Greek exit from the Euro: this is the first time I can remember in 25 years of listening to NPR that they have included information in the news update about the day’s trading on the stock markets in France, Germany, and other European countries.

I’ve also learned in my morning reading that some are using the less-than-felicitous term “Grexit” as shorthand for the impending Greek exit from the Euro. Ugh.

Of course Greeks (and others, including British PM David Cameron) are making strong arguments about the large economic and social costs of Greece leaving the Euro. What are the costs of enabling them to stay? That’s the material question. If we have a flexible and adaptable and resilient global economy, we can digest the contagion. But some places are more brittle than others, due to rigidities such as labor market regulations (hello Spain!). I think contagion will be largest where those rigidities are highest, which means Europe. But are European countries willing to accept the costs of years of stagnation and debt load to avoid the disruption that will likely be sharp but briefer if Greece exits?

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6 thoughts on “Signs of the impending “Grexit”?

  1. A problem with Greece is that in most people’s minds there is a confusion between the Greece of Pericles and today’s Greece.

    Nobody was desperate to include Uzbekistan in the Euro zone or Zimbabwe, two countries where the population appears to have the same amount of economic awareness as Greece.

    Greece should be kicked out.

    On the same note, France should never have been let into the Euro, as they, Italy, Spain, and if I remember correctly, Germany, all cheated with the criteria for membership.

    The calls for “economic governance” of the Eurozone is really a call to officialize a continent-wide deception scheme.

  2. I still don’t see why Greece can’t default (go bankrupt) on debts while remaining in the euro. The payment system and debts are two different things…

  3. It is interesting that a key source of Greek budget deficits are overly generous pay and pensions for current and former government workers, combined with too many workers for too many tasks monopolized by Greek government and politically-connected firms. Though govt. employment percentage in Greece are similar to other countries, union rules contribute to lower productivity.

    Now if the Greek government and private firms were to reduce wages and pensions by 20% or 30%, there would be hatred and riots. But leaving the Euro is a messy way to lower wages and pensions by 20-30% or more, making Greek labor relatively more productive, but keeping the illusion of not lowering wages or pensions.

  4. My personal experience with Greek government unionized workers is limited to two flights on Olympic Airlines, during which the cabin crew made it patently obvious that having passengers on the flight was a serious inconvenience, to be borne only grudgingly. Their contempt, combined with the worst seating I have ever experienced on a long haul aircraft, made the flight a memorable experience, never to be repeated.

  5. Grehmke,

    I agree that it is a way to lower the salaries and pensions, but the problem with having 2, 3 or 4 times as many civil servants as they need, and then a pension age of 50-60 will leave the key problem in place, until such a time as there is a true collapse of the system. I cannot see that leaving the Euro is sufficient. The answer to that crisis will just be another round of tighter regulations to protect state employees against the elements/reality.

    So the few that work will still have to pay for the many that do not. The tourist industry will do well though.

    The real solutions to their problems will only happen with the collapse of the initial attempt they will make after initially leaving the Euro. But I fear that the European Union will step in to “help” them at that stage, so that true reform will be put off for another 50 years. Or maybe 2400 years. Philippe II of Macedonia conquered Greece in 338 B.C., roughly the last time it was a prosperous economic area.

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