There's an interesting argument from Arvind Subramanian in the FT this morning. He says:
Default will be disastrous for Greece and the resulting contagion would be damaging for Europe. So goes the conventional wisdom. The only debate has been about the strength of contagion and the appropriate response of vulnerable countries and of the cheque-writing country. Might the debate be misguided because the premise is flawed? Expelled from the eurozone, Greece might prove more dangerous to the system than it ever was inside it — by providing a model of successful recovery.
The whole article is worth reading.
His point is a serious one: after a period of extreme misery (and grant aid for the relief of poverty and maintenance of essential services in Greece will be essential if its people are to get through the two year period following withdrawal from the Euro) Greece will recover. At the very least Greek holidays will suddenly become very cheap and export markets such as tourism should grow again after the horrible interregnum, quite rapidly. Argentina, Iceland and others provide the precedent, uncomfortable as the ride is.
But the other side of the coin is as important. As Greece recovers, and if Spain, Italy, Portugal and Ireland follow it and also recover, the cost will be born by someone and that someone is Germany. They'll no longer have massive capital inflows and so low interest rates as the safe haven of Europe. Their banks will lose, badly - as they had the money to lose. And Germany will no longer have guaranteed export markets with efficiency differentials built in that bias towards the productivity of German labour.
The short term pain of Greek exit will be in Greece - and serious aid operations as well as rapid lessons in the management of capital controls will be needed very soon I expect - but the cost will eventually be on Germany.
The difficulty is persuading the Germans of that. It's taken two years for the people of Europe to rumble the madness of austerity. Can the Germans send Merkel a strong enough message before Greece defaults? That's a big question.
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And then there are credit default swaps, and London.
Of course the Germans realise it. They won’t pay. Greece is toast already, to be followed by Spain and Portugal. Ireland has already drawn the drawbridge up and the people could care less.
Holidays will be cheap, if you have the money to afford one and the ever-increasing tax on going on one.
‘The madness of austerity’ – what a phrase. Why not go the whole hog and declare the joy and commonsense of profligacy. Encourage nations and their people to spend regardless of whether they have the money to pay, just borrow and spend it, who cares, someone will come along to give a bail-out. There lies madness. ‘Living within your means’ should be the idea to get across.
If your argument were not so trite I’d bother with it
But all you’re doing is being infantile with language to seek to create a straw man that was never implied in my argument
And unlike your effort there are Nobedl Laureates who agree with my contrention
Reading this reminds me of a holiday we had in Corfu in the early 1970s when I was in my twenties.. It involved flying from Heathrow via Nice and Brindisi to refuel, before arriving in Corfu. We had prepaid the accommodation and we bought local currency at the hotel which came in the form of plastic coins. This was readily accepted at all local business outlets
Most of the other guests here at Messonghi Beach were young Germans and they readily admitted that it was cheaper for them to take holidays there compared with staying at home.
The local Greeks seemed very laid back and content with their lives and for us it was a memorable, relaxing and inexpensive holiday. Perhaps these happy days will return.
Your article is very timely. A similar view is being expressed by Henning Meyer in today’s Guardian Comment is free. I seem to remeber that sometime ago on one of your blogs I stated that I thought Merkel was past her ‘sell by ‘ date (a little unkind I must admit) but it is quite possible that she will be remebered for destroying the euro. She should have explained to the Germans how much thay had gained from the creation of the monetary union. Unfortunately so many politicians are unwilling to state the reality of situations. Having created what seems to be great hostility to the Greeks she may now be swept away by her own electorate.
This post undermines our feelings about tax/economic incidence!