Blackcap Blog

Published at 09:27 on 2 July 2015

Some basic points:

1. Yes, there was irresponsible borrowing and spending on the part of past Greek governments, which ran up a huge deficit which caused the current crisis.
2. It takes two to tango: Irresponsible borrowing is not possible without irresponsible lending. Part of the responsibility of lending money is doing the due diligence necessary to minimize the chance of lending it to a party who won’t be able to pay it back.
3. Greeks has suffered greatly for their past government’s role in creating the current crisis. There’s an actual depression going on there. The unemployment rate is 25%, and public sector services like health care are collapsing.
4. The capitalist class is suffering very little for their role in creating the current crisis.
5. If the Euro didn’t exist, currency devaluation would have stopped this crisis from getting to the current point. There still would have been unpleasant repercussions from the significant devaluation of the drachma, but they would have been less severe and more equitably shared between the Greeks and the banks.
6. Therefore the existence the Eurozone is responsible for turning a merely unpleasant crisis into a severe one.
7. If Greece stays in the Eurozone, there will be further unpleasant consequences. Austerity and the associated austerity-created depression will continue.
8. If Greece exits the Eurozone it will also cause further unpleasant consequences. Greeks will lose a big chunk of their wealth as Euro assets get converted into devalued drachma ones. But, the devalued drachma will make Greek exports and vacations cheap for foreigners, which will stimulate the Greek economy and end the depression. The humiliating status quo of having Greece’s domestic policy dictated from abroad by the “troika” will end.

Therefore it’s best for Greece to exit the Eurozone. Ditto for Spain, for basically the same reasons.

The Eurozone was a mistake. It created a tightly unified currency without a tightly unified governance structure, which spanned a region with significant cultural and economic differences. Such a thing was pretty much fated to collapse. Let it shrink to the point where it only contains the most affluent and developed European countries. Or let it gradually disappear entirely; the choice is up to the Europeans.

As difficult as the process is, it’s better to let it begin now than to dig the hole deeper and make the inevitable more difficult in the future.