Greece might have to quit the euro zone for a time if the country failed to tighten its belt sufficiently to qualify for emergency aid, a budget expert with Germany's junior coalition party said on Tuesday. A temporary exit from the single currency might benefit Athens if accompanied by a devaluation, the Free Democrats' (FDP) Juergen Koppelin told Deutschlandfunk radio.This suggestion is both impractical and unrealistic IMHO:
The EU treaty makes no provision for a euro zone member to quit the single currency, and top regional policymakers including ECB president Jean-Claude Trichet and Eurogroup chairman Jean-Claude Juncker have dismissed the possibility of Greece doing so...
"One may have to say no (to aid) if Greece does not meet conditions and the country just comes along to get money under more favourable terms from the euro zone than from banks," Koppelin said. Asked whether a German "no" meant that Greece would no longer get any money, Koppelin said: "That can't be ruled out, right up to the point where Greece would have to leave the euro zone for a time...This is not (monetary union) breaking up. The Greek currency could be depreciated. That could even help them with exports." Koppelin gave no further details of how a Greek exit from the euro or a devaluation might be structured...
Polls show an overwhelming majority of Germans oppose providing Greece aid, a view that has been reinforced by powerful sections of the media. Tuesday's edition of mass-selling daily Bild ran a headline: "Why are we paying for the Greeks' luxury pensions?"
- Being in the eurozone insulated Greece from balance-of-payments problems if not fiscal ones. Witness the still-long line of prospective entrants to join the eurozone. There is no incentive for Greece to make itself vulnerable on both fronts just so it can devalue willy-nilly;
- It reminds me of the old chestnut about no country being able to devalue itself to prosperity;
- Koppelin doesn't seem to understand that German and other EU lending will be at rates higher (~5%) than IMF lending (~3%) so there is no "free ride" here.