A Greek Tragedy

by Desmond Lachman

American Enterprise Institute
March 16, 2010

The sad reality is that Greece's domestic and external imbalances have reached such a dimension that their correction within the straightjacket of eurozone membership will necessarily involve many years of painful deflation and of deep economic recession.

Groucho Marx famously observed that he would not join a club that would have him as a member. As the Greek economic crisis heats up, one wonders whether Greek policymakers are not thinking the same about Greece's Eurozone membership. Not only does its Eurozone membership seem to be condemning Greece to many years of deep economic recession and deflation. Rather, Greece's present economic travails are now raising serious questions about the longer-run viability of the Eurozone in its present form.

At the root of Greece's present economic crisis is its longstanding failure to remotely live up to its Maastricht Treaty obligations with respect to its public finances. Indeed, from the moment Greece adopted the euro in 2001, the Greek authorities have been engaged in shameless creative budget accounting that evidently misled not only Greece's Eurozone partners but Greek policymakers themselves.

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