{"id":60827,"date":"2015-07-13T12:00:18","date_gmt":"2015-07-13T11:00:18","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=60827"},"modified":"2015-07-11T19:20:02","modified_gmt":"2015-07-11T18:20:02","slug":"ending-greeces-bleeding","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2015\/07\/ending-greeces-bleeding\/","title":{"rendered":"Ending Greece\u2019s Bleeding"},"content":{"rendered":"
\"Paul<\/a>

Paul Krugman<\/p><\/div>\n

Europe dodged a bullet on Sunday [5 Jul 2015]. Confounding many predictions, Greek voters strongly supported their government\u2019s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.<\/p>\n

Of course, that\u2019s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.<\/p>\n

But the campaign of bullying \u2014 the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office \u2014 was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.<\/p>\n

What\u2019s more, they weren\u2019t. The truth is that Europe\u2019s self-styled technocrats are like medieval doctors who insisted on bleeding their patients \u2014 and when their treatment made the patients sicker, demanded even more bleeding. A \u201cyes\u201d vote in Greece would have condemned the country to years more of suffering under policies that haven\u2019t worked and in fact, given the arithmetic,<\/a> can\u2019t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the \u201cno\u201d side offers at least a chance for an escape from this trap.<\/p>\n

But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?<\/p>\n

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn\u2019t it will effectively force Greece into introducing a new currency.<\/p>\n

Specifically, if the money doesn\u2019t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency \u2014 and which might soon turn into the new drachma.<\/p>\n

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth.<\/p>\n

In the failed negotiations that led up to Sunday\u2019s referendum, the central sticking point was Greece\u2019s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika \u2014 the institutions representing creditor interests \u2014 refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded<\/a> independently that Greece\u2019s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?<\/p>\n

I have no idea \u2014 and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.<\/p>\n

Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue \u2014 let the drachma\u2019s value drop, both to encourage exports and to break out of the cycle of deflation.<\/p>\n

Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move<\/a> \u2014 after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?<\/p>\n

Would Greek exit from the euro work as well as Iceland\u2019s highly successful devaluation<\/a> in 2008-09, or Argentina\u2019s abandonment<\/a> of its one-peso-one-dollar policy in 2001-02? Maybe not \u2014 but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.<\/p>\n

And let\u2019s be clear: if Greece ends up leaving the euro, it won\u2019t mean that the Greeks are bad Europeans. Greece\u2019s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government\u2019s sins many times over. If they can\u2019t make a go of Europe\u2019s common currency, it\u2019s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.<\/p>\n

________________________________<\/p>\n

Paul Krugman<\/em> received the 2008 Nobel Prize in Economics. He joined <\/em>The New York Times in 1999 as a columnist on the Op-Ed Page and continues as professor of Economics and International Affairs at Princeton University. He has taught at Yale, MIT and Stanford. He is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes. <\/em><\/p>\n

A version of this op-ed appears in print on July 6, 2015, on page A17 of the New York edition with the headline:<\/em> Ending Greece\u2019s Bleeding.<\/p>\n

Go to Original \u2013 nytimes.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The campaign of bullying \u2014 the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office \u2014 was a shameful moment in a Europe that claims to believe in democratic principles.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[105],"tags":[],"class_list":["post-60827","post","type-post","status-publish","format-standard","hentry","category-nobel-laureates"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/60827","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=60827"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/60827\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=60827"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=60827"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=60827"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}