Dr. Dani Rodrik is the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He has published widely in the areas of international economics, economic development, and political economy.
Consider the following scenario. After a victory by the left-wing Syriza party, Greece’s new government announces that it wants to renegotiate the terms of its agreement with the International Monetary Fund and the European Union. German Chancellor Angela Merkel sticks to her guns and says that Greece must abide by the existing conditions.
Fearing that a financial collapse is imminent, Greek depositors rush for the exit. This time, the European Central Bank refuses to come to the rescue and Greek banks are starved of cash. The Greek government institutes capital controls and is ultimately forced to issue drachmas in order to supply domestic liquidity.
With Greece out of the eurozone, all eyes turn to Spain. Germany and others are at first adamant that they will do whatever it takes to prevent a similar bank run there. The Spanish government announces additional fiscal cuts and structural reforms. Bolstered by funds from the European Stability Mechanism, Spain remains financially afloat for several months.
Mr. Philip Chrysopoulos
The Greek Reporter (www.greekreporter.com)
The success stories of Greek entrepreneurs who defied the economic crisis and prospered is the subject of a recent feature article in The Washington Times.
Penny Vomva is a fashion designer who took the risk to open a store and sell her creations in prestigious Voukourestiou street in downtown Athens. Now RIEN, her storefront, sits next to Dior and Prada. Her handmade leather handbags sell for 180 to 450 euros, rather steep for the crisis-stricken Greek market, but Vomva says business is good and it would have been better if it wasn’t for the crisis.
Professor Paul De Grauwe is the John Paulson Chair in European Political Economy at the LSE’s European Institute. Prior to joining LSE, he was Professor of International Economics at the University of Leuven, Belgium. He was a member of the Belgian parliament from 1991 to 2003.
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This article has been posted in the Social Europe Journal:
The Greek debt crisis that erupted in 2010 is back and again threatens the stability of the Eurozone. That crisis was the result of two factors. First, an unbridled spending drift of both the private and the public sectors in Greece during the boom years of 2000-2010, which led to unsustainable levels of debt. Second, reckless lending to Greece by Northern Eurozone banks. At no time the Northern bankers asked themselves the question of whether the Greeks would repay the loans.
The European Union chose to resolve the debt crisis by punishing the Greeks and by saving the Northern banks. A punitive austerity program was imposed on Greece, whose effects are now visible everywhere in this country. A decline in GDP of close to 25% since 2010, a rise in unemployment to a level we have not seen since the nineteen thirties, and impoverishment of large parts of the Greek population.