Greek Exit Should Not Have to Affect Other Weak Euro States

Greece is uniquely reckless and insolvent. Its exit should not reflect poorly on other countries.

Greek prime minister Alexis Tsipras and European Commission president Jean-Claude Juncker answer questions from reporters in Brussels, March 13
Greek prime minister Alexis Tsipras and European Commission president Jean-Claude Juncker answer questions from reporters in Brussels, March 13 (Greek Prime Minister’s Office)

If Greece exits the euro, doubts will likely resurface about the future of other peripheral states in the currency union. But there is objectively no reason to fear a disintegration of the eurozone.

Jeffrey Sachs, a left-wing economist, argues that “the world will never again trust the euro’s longevity” if Greece is forced out of the single currency.

The country’s inability to secure another bailout means it could enter default later this month. If Greece is unable to pay back its loans from the European Central Bank and the International Monetary Fund, it is highly doubtful it could stay in the eurozone.

Sachs believes other fiscally weak countries like Ireland, Italy and Portugal could see their borrowing costs go up in the wake of a Greek exit — or worse.

At a minimum, the eurozone’s weaker members will undergo increased market pressures. In the worst case, they will be hit by a new vicious circle of panic and bank runs, also derailing the incipient European recovery.

This is unfair to the efforts especially Ireland and Portugal have made in recent years. Both received bailouts, like Greece, when they could no longer affordably borrow on their own. But unlike Greece, both have made serious fiscal consolidation efforts, including public sector spending cuts and welfare reforms, to exit their bailouts successfully.

Ireland and Portugal are also more liberal economies with stronger export industries.

In short, they did what Greece was supposed to do: get their house in order.

Harry Theoharis, a centrist Greek parliamentarian, recognizes in The Guardian newspaper that Greece’s ongoing hardship is largely of its own making.

There is no question […] that the bulk of the blame lies with successive Greek governments that have only fitfully shown true understanding of the economy’s problems and a willingness to confront them. It is ultimately this lack of political ownership of reforms that separates Greece from other program countries and which is the main source of angst in European capitals.

Rather than enact the cuts and reforms it promised to, Greece has reneged on the terms of its €240 billion bailout. It now demands relief from austerity and a further reduction of its debt in order to finance more pension and welfare spending. It has also canceled privatizations and labor market reforms.

The fact that the rest of Europe — especially other bailout states that did make painful but necessary adjustments — is running out of patience and might decide to cut Greece off is not what should worry financial markets. If anything, a Greek exit would leave the rest of the eurozone more solvent.

What should worry the markets is Greece’s unchanged reckless behavior. It are the self-victimizing Greeks who constantly raise doubts about the “euro’s longevity,” not their creditors.

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