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Greece can trade its debt cancellation against exiting the euro zone

31 October 2014 / 14:10:40  GRReporter
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Anastasia Balezdrova

Greece should have left the euro zone as long ago as 2010. If it continues its membership in it, its marginalization will continue, according to the opening words of Professor of Economics at the University of London Costas Lapavitsas’ lecture during the debate on "Is the euro in favour of Greece?" that was organized by the Institute of Diplomacy and Global Affairs in Athens.

According to the economist who is close to the opposition leftist party SYRIZA, the Greek crisis is not due to the weak points in its economy. He stated that they had existed before it, and added that the only way to solve the problems is for the country to leave the euro zone and therefore return to the national currency.

"The exit will not be easy, but it is manageable. Thus, a process can start to correct the errors in the national economy. What is being done today under pressure from creditors does not solve anything. He who thinks that actions are being taken to recover the economy and the institutions is wrong," he said flatly.

Honorary Professor of Economics at the Economic University of Athens George Bitros undertook to refute Lapavitsas’ arguments. He made ​​a brief historical flashback to prove that it is not the currency that is to blame for the Greek crisis, but the economic policies applied in Greece over the years. "In 1985 Greece went bankrupt once again, for the sixth time over the past 200 years. Then it was a closed economy and its national currency was the drachma. The reasons for the failure were two, namely the accumulation of government debt and the expansion of the public sector."
The Professor said that, during the debate about whether Greece should access the euro zone or not, he was in a state of uncertainty. "The adoption of the euro was premature. If there had been a referendum on this issue at that time I would have voted negatively," he said, adding however that Greece’s present state is due to the poor economic policies rather than to the European currency.

Although Lapavitsas shares the forecasts by the International Monetary Fund that 2014 will be the last year of recession for Greece and that it will report economic growth in the following years, he said that the huge government debt will continue to be unmanageable. "The state of the external debt can be improved only by cancelling it. All forecasts indicate an average growth of 3.3% per year over the next few years. Under these conditions, the debt will continue to be between 140-150% of the gross domestic product. This situation is unmanageable and everyone knows it. Even the International Monetary Fund agrees that the debt should be cancelled but it still does not recognize it. Of course, it should be considered how this process would take place but as a start, it should be made ​​clear that this should happen. "

Regarding Greece’s exit from the euro zone, he said that it is preferable to complete it without conflicts. "It is possible, however, that the matter be placed in the form of extortion in connection with solving the problem of the external debt."

According to the economist, the European Economic and Monetary Union is one of the least successful currency unions. "This is not so because it is not the perfect monetary union, because the European Central Bank is not a "real" central bank, nor because the case is not about one country. The deep reason for its failure is the systemic differences in the competitiveness of the economies of member states."

Lapavitsas pointed out that the problem lies in the fact that Germany is maintaining an inflation rate below the euro zone average. "It is maintaining low nominal wages to ensure the competitiveness of the goods exported. Thus, the euro zone has actually turned into Germany’s machine for budget surpluses."

At the end of his lecture, the economist presented his proposals for Greece’s emergence from the crisis. In addition to the cancellation of the external debt, they include the following: discontinuing the policy of budget cuts, state intervention to solve the problem of high unemployment, state control over banks and state intervention in key sectors of the economy, drawing up of a medium-term programme for economic development and structural adjustment of the public sector.

To his proposal to nationalize banks, Professor Bitros replied that precisely the introduction of that policy in 1975 by the government of New Democracy at the time, with the nationalization of two banks and 18 profitable private enterprises and industries, had led to stagnation in Greece’s economic growth, expansion of the public sector and to the current state of the economy.

Tags: EconomyMarketsEuro zoneGreek debtEuroCostas LapavitsasGeorge BitrosInstitute of Diplomacy and Global Affairs
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