Listen to me, Greece: Get the hell out of the Eurozone.
With the crumbling state of Greece’s economy, returning to the drachma would be the best option for the country. The Greeks need the flexibility and strength of their own currency and exchange rate if they have any hope of recovering from this economic disaster. Greece must jump ship before things get bad for the European Union.
The Union has been hurting the 27 member countries since monetary union came into full force in 2002. According to John Kallianiotis, a Professor at the University of Scranton, the euro has destroyed exports, foreign investments, tourism, shipping and many other activities. Current trends that include increasing taxes continue to hurt Greek citizens.
Greece needs the ability to devalue its currency, which it cannot currently do being a part of the Eurozone. Because the value of the Euro is dominated by huge economies in Europe like Germany, France and Italy, according to the Vice President of the Mercatus Center at George Mason University, the economic performance of a small economy like Greece has little effect on the value of the euro. If a country cannot devalue its own currency, then the country must go through years of austerity to even try to reach minimal levels of economic competitiveness again. Greece must leave the Euro to begin the path of economic recovery.
In 2002, Argentina was facing a similar situation to what Greece is now: the South American country was in a severe recession that several rounds of fiscal austerity could not fix. This is because in 1991, the Argentinian government tied its currency to the American dollar as way to reduce hyperinflation. While the inflation problem was fixed, the country’s exchange rate hindered the government by leaving Argentina with little control of its own money supply.
In fact, it only further slowed the economy. When the government tried to cut spending and raise taxes, the austerity only decreased growth. While the aftermath of devaluation in Argentina was disastrous immediately in 2001, just two years later the economy was in full recovery: unemployment had dropped by two-thirds, doubled output and tripled exports. The economic change resulted because, when Argentina devalued, the country began an economic outlook that focused on growth instead of a plan around austerity that only continues a cycle of struggling cuts and burdens.
But yet, I fully understand that this could have devastating effect immediately on Greece. Returning to the drachma will be so difficult that the entire banking system could face severe consequences that include running out of liquidity. In fact, Greece, by devaluing and leaving the Euro, could have inflation skyrocket up to 50 percent.
There is no doubt that leaving the Eurozone will both difficult and devastating, but it is necessary. If Greece continues down this current path, a prolonging of more austerity, low levels of economic productivity and very high unemployment will continue to hurt the Greek people. Inflexibility is the key to helping Greece’s economy woes. While there might be a period short-term harm, examples like Argentina show that a period of long-term economic recovery will be just over the horizon.
Reach the columnist at ndsmit12@asu.edu or follow @noahsmith1996 on Twitter.
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Editor’s note: The opinions presented in this column are the author’s and do not imply any endorsement from The State Press or its editors.
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