Thursday, 9 July 2015

How to avoid an economic disaster - Grexit

In 2010, I wrote about financial disasters – the South Sea Bubble, the bear market of 1972-4, the Great Crash of 1987, and the banking crisis that began in 2007 – for my book, London’s Disasters. Now I’m watching another – the attempt to keep Greece in the Eurozone.

Greece only got into the euro thanks to some heroic book cooking, but as long as the world economy kept growing, no one worried. A bit like the South Sea Company. It was worthless, but as long as the share price kept going up, everything was fine. But bad times reveal the truth, and the house of cards comes crashing down.

Over the last five years, more than €200 billion has been spent trying to keep Greece in the Eurozone. But you cannot make water flow uphill. Greece cannot pay its existing debts. Loading it with more debt would be crazy. Grexit will not be easy, but the alternative is worse. The sooner Greece leaves the euro, the better it will be for Greece and for the rest of Europe.

Greece cannot live with the euro rate of exchange. It desperately needs a devaluation. That cannot happen inside the euro. It is time to stop throwing good money after bad.

Simon Jenkins argues the case well -

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