Tuesday, 8 May 2012

In the short run...

NPR has a pretty straightforward summary of the problems facing Greece namely that when they finally vote for the umteenth time for a sufficiently radical government which rejects the obvious problem – the Euro – they will face an economic cataclysm.

Certainly the short run pain will be even greater than todays glacial austerity torture. However much like Argentina in 2001 once you drop the peg and drop off a cliff you can start the process of things getting better again, in the long run. NPR makes a good summary here that perhaps it summarizes the obvious;

“Some people think this is actually Greece's least-bad option in the long run. Leaving the euro would allow Greece to devalue its currency, making its exports more competitive. Defaulting on all its debt would allow the government to stop spending so much on interest payments.
Maybe. But in the short run, it would be an economic disaster for Greece. And it would require the government to cut spending even more, as the Greek economy continued to collapse, and foreign lenders abandoned the country.”
So to avoid short run pain the Greek government (whatever that is now) continue not to take the medicine even though the people are voting for it? However since Greeks plan to live in Greece in perpetuity at some point the long run is going to overtake the short.

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