Reuters
May 22, 2012
Greece should not be lulled into believing an exit from the euro would lead to the sort of short shock and sharp rebound that Argentina and Asian nations experienced when they devalued their currencies more than a decade ago.
The experience of other countries suggests that Greece too could benefit after the turmoil from euro zone expulsion subsides. But the hard data suggests, and economists believe, it would be too weak alone to lift itself out of trouble.
"It's one thing to leave a currency peg, quite something else to leave a currency. It's not a magic wand that you can wave to solve all of Greece's problems," said Nick Kounis, head of macro research at ABN AMRO.
Argentina's experience after defaulting and abandoning its currency peg in 2001-2002 is the most encouraging. Its economy shrank for four successive years from 1999 to 2002, including a 10.9 percent contraction in the final year, but then grew by on average 9 percent in the subsequent five.
The Asian financial crisis of 1997 saw a domino effect across the regions as markets attacked what they saw as overvalued currencies, forcing the IMF to bail out several countries. Within a few years, they were prospering again, largely on the back of exports made more competitive by their lower exchange rates.
Could that be a model for Greece, set for a fifth year of recession in 2012?
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