Some Economists Support Return To The Drachma
GUY RAZ, HOST:
So the Greek referendum is off and the scramble is on to finalize a European bailout of Greece. But some economists are suggesting that Greece would benefit from another plan: Ditch the euro now and return to the drachma.
One of those economists who argues Greece will be better off without the euro is Stergios Skaperdas, who teaches at the University of California at Irvine.
Welcome to the program.
STERGIOS SKAPERDAS: Thank you.
RAZ: First of all, let's just explain that the basic problem for Greece with the euro is that the country doesn't have the same kind of control over the euro that it would if it had its own currency, right?
SKAPERDAS: Yeah, that's right. So what you have now, you have severe credit contraction and absence of liquidity for small and medium businesses. And one main reason is that the country does not control its money supply. That's one major reason. The second is that it cannot adjust its exchange rate so that it can become more internationally competitive. So...
RAZ: It can't devalue the euro unilaterally, essentially.
SKAPERDAS: Yeah, that's right. And those two things are very big because they change the nature of the economy tremendously because Greece has lost, according to some estimates, 30 percent of its competitiveness by being within the eurozone.
RAZ: Talk about the process of actually returning to the drachma. How would Greece do that? Would the country essentially default on its loans and then be thrown out of the eurozone? Or would this be a decision that they could take on their own? Or how would it pan out?
SKAPERDAS: Well, probably, it will be starting with unilateral default, stopping payments to interest. It cannot really be expelled from the eurozone. There is no provision in the Maastricht Treaty about the process of getting out of the eurozone, so it will be sort of going into a dark room.
RAZ: Just to be clear, you back this idea. You do think Greece should default. A growing number of Greek economists agree with you. The majority do not. But just listening to your scenario, I wonder what the upside here is. It's very...
SKAPERDAS: Well, there are two bad scenarios. They're not - but...
RAZ: It's bad or worse, essentially.
SKAPERDAS: Yeah, bad and worse. And what you have to compare, you compare it to Spain, the course - following the agreement of October 26th, Greece would lose all of its young and employable people will go abroad. You will be left with older, less productive, shrinking population that will have a crushing debt burden.
And being - basically, have no - any semblance of democracy because all the ministries, all major decisions will be made from Brussels and Frankfurt. And that's the alternative, a new type of colonialism, essentially.
RAZ: But it presumably will be almost as equally crippling if Greece walked away from all of its debts because the country would simply not be able to borrow money from anywhere in the world.
SKAPERDAS: Well, that's actually not literally true. It will not be able to borrow money for some time from the bond markets, but it could have loans from other countries. And second, it might not need to. It would have - Greece was fine up to 2001, when it got into the eurozone, just boring internally.
RAZ: Describe how you believe the Greek economy will have to adapt if, in fact, it does go this route and defaults and returns to the drachma.
SKAPERDAS: Well, the main adjustment, in addition to being able for having your own currency inject liquidity and credit in your own economy and revive the economy, you could also, through the devaluation, you will have an increase in tourism, a reduction in imports. And this way, that will stimulate the internal economy.
So, last summer, I head to Greece. In the middle of rural Greece, I bought in a supermarket Belgian tomatoes. Getting tomatoes from Belgium in the middle of the summer, this is economically absurd.
RAZ: Tomatoes from Belgium, of course, because Greece grows perfectly good - actually the delicious.
SKAPERDAS: That's right. And when you have Greece outside of the eurozone, you won't have any Belgian tomatoes.
(SOUNDBITE OF LAUGHTER)
SKAPERDAS: Of course, in relative terms, food and other items that are grown in Greece will become less expensive in some ways.
RAZ: So your argument, if I understand it, is that if Greece does default on its loans, it will suffer a period of economic pain, but it will recover more quickly than they would if it adopts the European austerity measures, you're saying.
SKAPERDAS: That's right. It will recover much more quickly. And in a year or two after that, it will go into a path possibly of high growth, depending on everything also that happens in the rest of the world.
RAZ: That's Stergios Skaperdas. He's an economist at the University of California, Irvine, talking about the advantages of a Greek return to the drachma.
Professor Skaperdas, thank you.
SKAPERDAS: Thank you too.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.