Euro exit by Greece should no longer be a taboo

The Greek economy has been in a state of permanent stress ever since the start of the major financial crisis. Nevertheless, Greece’s economic recovery is still a long way off: Since the beginning of the crisis, the country has shed around 26 percent of its economic strength in cumulative terms.

As early as 2010 Greece became reliant on assistance from its European partners and the International Monetary Fund – and no end is in sight. The financial assistance has, however, only been granted subject to certain conditions. Firstly, Greece is supposed to balance its budget and put its finances on a more sustainable basis. Secondly, the assistance is contingent on structural reforms to help get the Greek economy back on track for growth. To date, there has been no success on either front. Admittedly some progress has now been made toward balancing the budget, but there is still much to be done with regard to structural reforms.

A higher primary surplus (budget balance ex. interest payments) can help to improve the relative debt ratios. To date, Greece was asked to achieve a primary surplus of 3.5% of GDP. Such a high surplus would indeed contribute to restoring the health of Greek government financing. However, it is unrealistic to demand this of Greece. Accordingly, the IMF has of late stipulated that the surplus be only 1.5%. Greece could in fact achieve such a figure, but a primary surplus of 1.5% will not suffice to reduce the high budget deficit emphatically. It is therefore hardly surprising that the IMF has at the same time called on the lenders to reduce the debt load further.

What Greece really needs is enduring economic growth. This would reduce the high unemployment levels and contribute to a fiscal recovery. A stable growth track is something Greece will not be able to achieve within the Eurozone as Greece’s economy is simply not competitive enough. Logically, then, the current system of explicit and implicit assistance for Greece cannot be simply and quickly brought to an end. Conclusion: It is time to stop insisting that we do not think about the possibility of Greece exiting the euro zone, as such a step could offer Greece rational alternatives.

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