Must-Read: Paul Krugman: Argentine Lessons For Greece

Must-Read: Citing Marc Weisbrot, Paul Krugman argues that the very sharp Carmen Reinhart’s fears of the damaging consequences of a rapid Greek exit from the eurozone are overblown:

Paul Krugman: Argentine Lessons For Greece: “Carmen Reinhart tells us… we should expect very bad things…

…And maybe we should. But her data analysis here is, I think, misleading…. Carmen looks at annual averages, and finds that in 2002 Argentine real GDP per capita was 8.2 percent lower than in 2001… suggest[ing] that the end of convertibility delivered a terrible blow to the economy. But as Mark Weisbrot has been saying… Argentina’s economy was in free fall over the course of 2001… thanks in large part to banking collapse and public panic (sound familiar?). But the free fall ended quite soon after the peso was devalued…. On a quarterly basis, GDP was rising by mid-2002, and the economy was growing rapidly by 2003…. That big decline from 2001 to 2002 is mainly telling us about the effects of the pre-devaluation panic, not the effects of devaluation itself…. You can’t use Argentina as a reason to fear Grexit at this point, given that once again the financial panic has already happened.