Not Too Late for the Euro's Core

by Desmond Lachman

New York Times
November 1, 2011

Mark Twain famously observed that while history might not repeat itself, it often rhymes. As if to bear him out, economic and political developments today in Greece are bearing an uncanny resemblance to those in Argentina in late 2001. Those developments led to Argentina’s disorderly default and ignominious exit from its supposedly immutable U.S. dollar exchange rate peg in early 2002.

Mr. Papandreou’s desperate gamble to now call a referendum has to be seen against the backdrop of a Greek economy in virtual free-fall under the weight of I.M.F.-imposed austerity and a country bordering on ungovernability. His highly risky gambit will almost certainly lead to the fall of the Papandreou government, which will compound Greece’s already chronic economic and political woes. If Argentina’s experience is any guide, economic and political collapse will render it all but impossible for Greece to avoid a disorderly default and, in time, a euro exit.

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