Where I part from Paul Krugman on Greece and the euro

[CHIMO]

Paul Krugman responds to my op-ed earlier this week in the New York Times on Greece and the eurozone with agreement and disagreement. He agrees that "Argentina is the right parallel" for the Greek situation, and that "the programme for Greece is not working; it's not even close to working." But he disagrees on exiting the euro, for two reasons: first, Argentina "still had peso notes in circulation, so the mechanics of exit from the peg were much easier than exiting the euro would be"; and second, "Greece, as a relatively poor country with a history of shaky governance, has a lot to gain from being a citizen in good standing of the European project."

These are good points, and I think reasonable people can disagree on whether Greece should consider leaving the euro; there are a number of risks and uncertainties with that path as well as the current path.

Before addressing these points, I should clarify that, despite the headline assigned to my original article reading "Why Greece should reject the euro", I did not argue that Greece should simply exit from the euro. My argument was that this has to be on the table, and that if the European authorities continue to offer Greece only punishment, rather than help, then the Greek government – as well as others – should be prepared to leave.

Krugman's first point about the difference between Greece and Argentina, in terms of Greece having already given up its currency, is very true. This does complicate matters. Greece would have to reintroduce its currency, something that Argentina did not have to do. However, Argentina did suffer a serious financial collapse, even with its own currency. In the fall of 2002, with the recovery already underway, the IMF projected just 1% growth for 2003. Actual growth turned out to be 8.8%.

http://www.guardian.co.uk/commentisfree/cifamerica/2011/may/13/greece-paul-krugman-euro

[applegrove]

1. My dad always used to say that Argentina was an example of what

bad trade policy would do to a country after WWII. Canada and Argentina were about the same size but Canada had moderately liberal trade policies after the war and Argentina did not. Argentina was a basket case for the longest time. Canada did well.

[roamer65]

2. Germany and its peripheral countries need to leave the euro.

The new currency would rapidly appreciate and the euro retained by Greece, Italy, Spain and Ireland would rapidly depreciate. This may be the only way a massive currency crisis can be avoided.