Most economists now agree: Imposing austerity in a time of recession does not work. It only inhibits growth and deepens the recession.
Yet last week, the troika—the European Commission, the European Central Bank, and the International Monetary Fund—forced Greece to accept another round of austerity that requires, among other things, €50 billion in government assets to be collected into a privatization fund and the reversal of laws passed earlier this year that were intended to ease conditions for a desperate population. In return, the country will receive a €86 billion bailout. In the words of recently resigned finance minister Yanis Varoufakis, the latest deal is “absolutely impossible, totally non-viable, and toxic.”
The IMF itself, which now advocates debt restructuring, knows that as long as its economy is shrinking, Greece will never be able to repay its debts. In the meantime, the troika has stripped the last vestige of sovereignty from the Greek government.
Many economists and commentators, as well as some political and economic leaders, continue to call for Greece’s exit, or “Grexit,” from the eurozone, arguing that while the country would suffer an initial shock, currency devaluation after leaving the euro would eventually allow a return to growth and a healthy economy. But the voices are far from united. Here’s a look at the pros and cons.
The Gains From Grexit
First and foremost, Greece will regain its sovereignty. As negotiation after negotiation has shown, the Greek government now has little control over its economic policy, which is left instead to the whims of class and institutional tensions across Europe. If it stays in the union, The Economist points out, Greece “will face painful budget cuts with no monetary flexibility and without the opportunity to devalue. Its debts will still be there, pending some future act of German magnanimity that may or may not be forthcoming.”
With Grexit, on the other hand, Greece will be able to make its own decisions about monetary policy. After all, “sovereign nations get to make sovereign decisions about their future,” as James Stavridis wrote for Foreign Policy. The government could use monetary policy to adjust for inflation and unemployment. The “new drachma,” devalued, could boost Greece’s ailing tourism industry, since it will be easy for people living under other currencies to vacation there. With a “velvet divorce” and break from the euro, the Greek government could push through budget cuts with autonomy and flexibility. Within a few years, GDP, at least according to some analyses, would resume an upward trajectory.