Guardian
September 21, 2011
Costas Lapavitsas argues that "exit is the most sensible way for Greece to restore competitiveness and start to recover" (Greece must default and quit the euro. The debate is how, 20 September). But this "solution" would cause huge problems to ordinary Greeks and, above all, would not deal with many of the political, social and economic causes of the country's economic malaise.
Just like many economists who share his disdain for the euro, Lapavitsas claims that after a coercive (as far as the banks are concerned) default, and exit from the eurozone, "recovery should start in a few months, spurred by devaluation that would allow industry to increase exports and recapture the domestic market". In reality, the first beneficiaries would be the privileged few who have already taken advantage of the free movement of capital and stashed their savings in hard currency abroad. Ordinary Greeks would lose half of their savings overnight.
As the new drachma would be both much weaker and cheaper than the euro, its advent would lead to dramatic increases in the prices of all imported goods but – contrary to Lapavitsas's assertions – this would not generate the positive effect on domestic production one might expect. This is because, according to the World Bank, Greece imports nearly two-thirds of its energy. With a weak currency, the price of energy would skyrocket, wiping out much of the artificial boost in competitiveness.
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