Must-Read: Martin Wolf: Divorce Greece in Haste, Repent at Leisure

Must-Read: Martin Wolf: Divorce Greece in Haste, Repent at Leisure: “Some argue… Greece at least would be far better off…

…after a default and exit… a default to its public creditors… a new currency, a big devaluation (accompanied by sound monetary and fiscal policies), maintenance of an open economy, structural reforms and institutional improvements would mark a turn for the better…. [But a] Greece that could manage exit well would have also avoided today’s plight.

Neither side should underestimate the risks. It is also crucial to avoid the contempt so characteristic of the frayed nerves caused by failing negotiations. Fecklessness may be a grievous fault, but grievously have the Greeks answered it. As the Irish economist, Karl Whelan, points out in a blistering response to Mr Giavazzi… from peak to trough, aggregate real gross domestic product fell by 27 per cent…. The unemployment rate reached 28 per cent in 2013…. Europeans are now dealing with Syriza because of this calamity. But they are also dealing with Syriza because of the refusal to write down more of the debt in 2010. This was a huge error, made far worse by the subsequent collapse of the Greek economy. Indeed, the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors. Creditors, too, have a duty to take care….

It is tragic that the breakdown might occur now, after so much pain has already been suffered…. The parameters of such a deal are also clear: a small primary surplus in the short run, a decision by the eurozone to pay off the IMF and the ECB, accompanied by long-term debt relief, and a strong commitment to bold structural reforms by the Greek government…. Right now, however, the aim must still be to cool down and secure a deal. Yet, in the current mood of anger and recrimination, reaching one now seems ever more unlikely…. It might be a relief to divorce a difficult partner. But the partner will still exist…. Greece will remain strategically located and even inside the EU. Neither the Greeks nor their partners should imagine a clean break. The relationship will continue. It will just be poisonous…

June 16, 2015

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