In the aftermath of last week’s elections in Greece, in which voters resoundingly rejected further austerity, Europe is struggling to come to terms with Greek voters’ conflicting desire to stay in the Euro while also delaying necessary reforms. However, while debating how to keep Greece in line and in the Euro, a more fundamental question seems to be should Greece remain in the Eurozone at all? It is becoming increasingly clear that the answer is no—both because Greece cannot regain its international competitiveness while shackled to a common currency with countries like Germany and the Netherlands, and because its people have suffered enough already.
Political leaders from Brussels to Berlin have continued to emphasize that Greece is the exception, not the rule, throughout the crisis. Originally they meant that only Greece would need an infusion of cash to make a debt payment. Then, after Ireland and Portugal proved that thesis wrong, Greece’s massive private sector debt “haircut” was supposedly exceptional. This “managed default” gave rise to the false sense of hope that Greek crisis had been dealt with, and everyone could return to focusing on growth instead of further austerity.
However, the May 6th parliamentary elections changed all that. In the midst of a fifth consecutive year of recession, facing unemployment of over 20 percent—over 50 percent for young people—and after massive layoffs and severe cuts to pension plans, Greeks revolted. Their political class had failed them on a massive scale and thus parties on the far left and far right that called for an end to the austerity—in defiance of the EU and IMF—won a record number of seats. The Greek people had spoken clearly: enough is enough.
After the parties were unable to form a governing majority, Greeks must now go to the polls again in June. Many in Europe are hoping that this second chance will produce a “this time we’re serious” coalition government in support of the terms of the EU and IMF assistance package. Opinion polls show that this outcome is increasingly unlikely.
Still, Europe has an opportunity to act boldly. Their idea that Greece is the exception rather than the rule can finally be proven correct. Greece should be allowed to leave the Euro in an orderly fashion, as the rest of the Eurozone strengthens its fiscal ties to ensure that Greece is the only country to leave.
To be sure, the path forward will be difficult and painful for all involved. To this point, the main argument for keeping Greece in the Euro despite the massive costs to Europe and the Greek people themselves has been the fear of the unknown consequences of a Greek exit. The negative economic impact of the reintroduction of the drachma can, though, be limited somewhat by clearly delineating the exact steps and timeline of the process.
Existing private debts will be paid off, perhaps at a discounted rate, in Euros. And the new drachma will trade at a rate 30 to 50 percent below the Euro. This will allow Greece to regain its position as an attractive destination for tourism, its agricultural exports will be priced competitively, and its workforce will be compensated at a rate proportional to its productivity in comparison with the rest of Europe.
A difficult transition period lies ahead, both for Greece and for Europe, but a large and growing number of Greeks would gladly exchange years of endless austerity with nary a light at the end of the tunnel for a chance to start over. Europe at least owes the historic home of democracy the right to determine its own economic future.
Garrett Workman is the assistant director for the Atlantic Council Global Business & Economics Program. Photo credit: Getty Images.