It now seems inevitable that Greece will default on its debts, with all sorts of disastrous scenarios being discussed, particularly if it has to leave the euro.
But I know from my experience of working with Jubilee 2000 to “drop the debt” of poor countries in Africa and Latin America that there is life and economic recovery after sovereign debt crises.
Countries that defaulted in the 1990s suffered recessions that lasted briefly. Then came the rebound, asArvind Subramanian of the Peterson Institute shows. Argentina grew by 8% after its default, Russia by more than 7%, and Indonesia by 5% after its crisis.
Of course Greece would initially suffer a severe shock and economic contraction. Its elites would intensify the export of their wealth to, for example, the City of London, causing inflation.
Greece would have to issue an alternative, parallel currency – at a large discount to the euro – to finance domestic economic activity.
But Greek exporters would benefit from a mega-devaluation of this new currency, and increased competitiveness vis-a-vis European partners, especially Germany.
There are other upsides for Greece too. To understand why, we need to recognise that the eurozone monetary framework is like a “golden corset”. By defaulting on its debts, Greece can escape the “corset” that resembles the “barbaric relic” that Keynes deemed the Gold Standard of the 1930s.Read it at Prime
Greece: The upside of default
by Ann Pettifor | Director, PRIME