Leaving Euro Is Better Than Eternal Greek Crisis

JUL 15, 2015 2:50 PM EDT

By Justin Fox

Bloomberg

You may believe that Greece’s economic pain is mostly the doing of heartless and inept decision makers in Brussels, Frankfurt and Berlin. You may believe that the Greeks’ fecklessness has been so extreme that cutting them any kind of slack will destroy the credibility of the euro.

Either way, by this point you can probably agree that it was a mistake for Greece to join the European common currency in 2001. Maybe you think it was a mistake because doing so put the Greeks at the mercy of a bunch of austerity-crazed Northern European politicians. Maybe you think it was a mistake because the Greeks cheated to get in to the euro and have no business pretending to be part of a modern developed economy. I’m guessing hardly anyone would argue, though, that Greece and Europe would be worse off today if drachmas had never been traded in for euros.

So why exactly are Greece and its European creditors still trying against all odds and good sense to keep the country in the euro? I don’t mean that entirely as a rhetorical question. I’d really like somebody to tell me.

Yes, I get that in 2010 there were legitimate fears that a Greek exit would be contagious, pulling other weak euro-zone members down and out with it. In 2010, a Greek decampment would have also entailed a precipitous comedown for the Greeks themselves.

Since then, though, Portugal, Ireland, Italy and Spain seem to have moved far enough along that contagion is much less of an issue. And the Greeks have suffered so much economic pain since 2010 that leaving the euro wouldn’t necessarily make things worse.

Nowadays one hears concerns that booting Greece from the euro would cause Greece to turn from Europe to the waiting embrace of Russia. But would abandoning the euro really alienate Greeks more from Europe than what’s been happening to the country during the past few weeks?

It is true that leaving a currency union with no formal mechanism for exit is inevitably going to be dicey. As former Greek Finance Minister Yaris Varoufakis argued in a Guardian op-ed last week:

In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

Still, it seems like Greece’s exit could provide political cover for the kind of mercy and aid from the rest of Europe that has been politically impossible up to now. There were hints of this in German Finance Minister Wolfgang Schaeuble’s proposal last week for a Greek “time out” from the euro zone. Surely it would be better for Europe’s economic policy makers to spend their time figuring out how to manage an orderly Greek exit than continuing to negotiate deal after sure-to-fail deal to keep Greece in the euro.

A Greece that’s back on the drachma won’t be some kind of economic paradise. It will be a small, struggling country without great prospects for growth. But that’s still better than being a country caught in a perpetual crisis, isn’t it?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

In case you’re wondering, I lean more toward the first belief.

To contact the author on this story:

Justin Fox at justinfox@bloomberg.net

To contact the editor on this story:

James Greiff at jgreiff@bloomberg.net