Op-Ed Contributor: Why Greece Should Reject the Euro

 

SOMETIMES there is turmoil in the markets because a government threatens to do what is best for its citizens. This seemed to be the case in Europe last week, when the German magazine Der Spiegel reported that the Greek government was threatening to stop using the euro. The euro suffered its worst two-day plunge since December 2008.

Greek and European Union officials denied the report, but a threat by Greece to jettison the euro is long overdue, and it should be prepared to carry it out. As much as the move might cost Greece in the short term, it is very unlikely that such costs would be greater than the many years of recession, stagnation and high unemployment that the European authorities are offering.

The experience of Argentina at the end of 2001 is instructive. For more than three and a half years Argentina had suffered through one of the deepest recessions of the 20th century. Its peso was pegged to the dollar, which is similar to Greece having the euro as its national currency. The Argentines took loans from the International Monetary Fund, and cut spending as poverty and unemployment soared. It was all in vain as the recession deepened.

Then Argentina defaulted on its foreign debt and cut loose from the dollar. Most economists and the business press predicted that years of disaster would ensue. But the economy shrank for just one more quarter after the devaluation and default; it then grew 63 percent over the next six years. More than 11 million people, in a nation of 39 million, were pulled out of poverty.

Within three years Argentina was back to its pre-recession level of output, despite losing more than twice as much of its gross domestic product as Greece has lost in its current recession. By contrast, in Greece, even if things go well, the I.M.F. projects that the economy will take eight years to reach its pre-crisis G.D.P. But this is likely optimistic — the I.M.F. has repeatedly lowered its near-term growth projections for Greece since the crisis began.

The main reason for Argentina’s rapid recovery was that it was finally freed from adhering to fiscal and monetary policies that stifled growth. The same would be true for Greece if it were to drop the euro. Greece would also get a boost from the devaluation’s effect on the trade balance (as Argentina did for the first six months of recovery), since its exports would be more competitive, and imports would be more expensive.

Press reports have also warned of a sharp increase in Greek debt from devaluation if it were to leave the euro zone. But the fact is that Greece would not pay this debt, as Argentina did not pay two-thirds of its foreign debt after its devaluation and default.

Portugal just concluded an agreement with the I.M.F. that projects two more years of recession. No government should accept this kind of punishment. A responsible leader would point out to the European authorities that they have the money to support Greece with countercyclical policies (like fiscal stimulus), though they are choosing not to.

From a creditors’ point of view, which the European Union authorities have apparently adopted, a country that has accumulated too much debt must be punished, so as not to encourage “bad behavior.” But punishing an entire country for the past mistakes of some of its leaders, while morally satisfying to some, is hardly the basis for sound policy.

There is also the idea that Greece — as well as Ireland, Spain and Portugal — can recover by means of an “internal devaluation.” This means increasing unemployment so much that wages fall enough to make the country more internationally competitive. The social costs of such a move, however, are extremely high and it rarely if ever works. Unemployment has doubled in Greece (to 14.7 percent), more than doubled in Spain (to 20.7 percent) and more than tripled in Ireland (to 14.7 percent). But recovery is still elusive.

You can be sure that the European authorities would offer Greece a better deal under a credible threat of leaving the euro zone. In fact, there are indications that they may have already moved in response to last week’s threat.

But the bottom line is that Greece cannot afford to settle for any deal that does not allow it to grow and make its way out of the recession. Loans that require what economists call “pro-cyclical” policies — cutting spending and raising taxes in the face of recession — should be off the table. The attempt to shrink Greece’s way out has failed. If that’s all that the European authorities have to offer, then it is time for Greece, and perhaps others, to say goodbye to the euro.

Mark Weisbrot is the co-director of the Center for Economic and Policy Research.

 

Thousands of Afghans Rally in Kabul to Reject Any Peace With Taliban

The meeting, organized by a former intelligence director, Amrullah Saleh, and attended as well by Abdullah Abdullah, a former presidential candidate, was a frontal attack on the current government’s policies, and speakers denounced both Al Qaeda and the Taliban. The organizers promised that if they were not listened to, they would “go to the streets and protest.”

Under the name “a gathering for justice,” the meeting was attended overwhelmingly by Afghans from the north and particularly from Panjshir Province, the home of the Afghan icon Ahmed Shah Massoud, who was killed by suicide bombers backed by Al Qaeda two days before the Sept. 11, 2001, attacks. Panjshir is also the home province of Mr. Saleh and Mr. Abdullah.

Both men have long experienced friction with President Hamid Karzai: Mr. Karzai forced out Mr. Saleh, and Mr. Abdullah withdrew from a runoff election against Mr. Karzai in 2009 because, he said, the voting would be rigged. “The Taliban and Al Qaeda are terrorists,” said Mr. Saleh, as he looked out across the crowd, many of them young people. “They have destroyed our lands and houses, dishonored our wives and families.”

Then Mr. Saleh addressed Mr. Karzai: “You call them your brothers, this is oppression — to this nation; they are not our brothers,” he said in a criticism of Mr. Karzai’s frequent reference to the Taliban not as enemies or terrorists but as “upset brothers” or “angry brothers.”

The meeting struck a strongly nationalist tone and seemed aimed at generating the kind of grass-roots movement that has swept the Middle East. It was advertised on Facebook, radio and television stations, as well as in local newspapers.

Banners in Dari, one of the official Afghan languages, around the edge of the large tents were critical of the government: “The international community should not support Karzai for deals with the Taliban;” “Don’t step on our national interest by making deals with the Taliban;” “Every government organ is screaming with corruption, let’s root it out.”

The meeting was held in the parking lot of one of Kabul’s many immense wedding halls, and the manager, who asked that his name not be used, said that his staff had set out more than 10,000 chairs. Almost every one was filled, and overflow crowds gathered outside to listen to the speeches over loudspeakers.

The dominance of northerners at the gathering raised the issues of the growing tension over the prospect of a peace deal with the Taliban and the very different outlooks of the predominantly non-Pashtun north of Afghanistan and the overwhelmingly Pashtun south.

“As you know, one tribe, one circle has governed Afghanistan,” said Rasullah Paya, 22, a Kabul University student, referring to the Pashtuns, the ethnic group of Mr. Karzai. “From now on we don’t want one circle, one tribe, one nation, to run the government,” said Mr. Paya, who is from the Hazara ethnic group and is originally from Parwan Province, which is also in the north.

In fact, the government’s senior figures come from all ethnic groups, but perhaps because there is general frustration with day-to-day corruption and inefficiency, people feel deeply disenfranchised.

Others were even blunter. Abu Bakr, 32, from Panjshir Province, said, “We came today to participate in this gathering, to express our hatred of the Taliban and of the High Peace Council.”

The peace council, with more than 60 members, picked by Mr. Karzai, has been involved in reaching out to the Taliban and other insurgent groups to persuade them to lay down their weapons and join the government.

Mr. Saleh worked for Mr. Karzai until last June when insurgents attacked a peace jirga held in Kabul with rockets. In the wake of the attack, Mr. Karzai forced both Mr. Saleh and the interior minister at the time, Hanif Atmar, to offer their resignations because they had not pre-empted the attack. While Mr. Saleh is a Tajik, Mr. Atmar is a Pashtun, and they have criticized the government’s failure to root out corruption and to take a tough stand against the Taliban.

Underlying the reason for the gathering and on the minds of many in attendance was Mr. Karzai’s recent meeting with senior Pakistani officials at which the two countries’ leaders pledged to work together to bring peace to the region. However, in private the Pakistanis pushed for changes in Afghan policies, urging the country to draw closer to China and implicitly distance itself from the United States.

After the meeting, several local newspapers released what they said were lists of Pakistan’s demands to Afghanistan. While some of the demands were completely fabricated, others appeared to have been mentioned at the meeting, and the overall lack of transparency, coupled with the recent revelation that Osama bin Laden was living near a Pakistani military compound, has exacerbated people’s suspicions of Pakistan.

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