Argentine Episode Is Little Comfort for Greece

Wall Street Journal
July 6, 2011

As Greece's economy strains to cope with towering debt and an overvalued euro, some politicians and economists in Athens are debating the "Argentine solution."

That is a reference to the drastic steps Argentina took a decade ago when its economy was in a similar predicament—crushed by debt and its growth and exports hamstrung by an overvalued, dollar-pegged peso. The burden prompted Argentina in 2001 to default on its debt and later devalue the peso. The economy plummeted in the immediate aftermath, but a decade of brisk growth followed.

But former Argentine government officials who served during the crisis and recovery said that even though Greece's current path of relentless belt-tightening looks unsustainable, Argentina's cure may not be the answer either. Greece's deep integration in the European Union—especially its use of the euro—would make it harder for Athens to renege on its debts or ditch its currency the way a more isolated Argentina did, they said.

Greece's Parliament last week narrowly approved a five-year austerity plan as a condition of a new bailout from creditors. But even if Greece's debt payments were eliminated, the country would still have a budget deficit roughly three times the size of Argentina's in 2001, the former officials added.

Plus, Greece doesn't have a growth engine equal to Argentina's farming sector, which was able to exploit the weak peso—and a near tripling in global soybean prices over the past decade—to drive the recovery.