conomic policy eurozone crisis finance international europe politics government

The proposition vastly understates the negative impact a default has on the local economy. It is unrealistic to compare Greece with Argentina. As a member of the Eurozone, the developments within the Greek debt crisis have a huge impact on nations suffering from similar problems, as well as the Eurozone as a whole. Moreover, devaluing the Drachma would be nowhere near as beneficial as the proposition suggests. Greece is not rich in natural resources or industry and so boosting exports will not make a huge difference.  Yes, a default would resolve the uncertainty about whether Greece will default and exit the Euro. However this new predictability would not be good; it would simply show investors that they cannot invest in Greece because they will lose their money. Ratings agencies are unlikely to consider Greece a safe investment for a long time so there will not be international investment.[1]  [1] Pappa, Eppi: “Q&amp;A: What happens if Greece leaves the euro?”, 14 May 2012, Al Jazeera,

Greece’s default will not decrease uncertainty. If anything, the perceived risk of investing in other Eurozone members suffering from their own debt problems like Italy, Spain, Portugal and Ireland would rocket sky-high. The Eurozone project as a whole may struggle on with Germany trying to keep it together, but claiming that a Greek exit from the Eurozone would restore stability is short-sighted. Many of Greece’s creditors are European banks and financial organisations. Greece’s default would, therefore, be a heavy blow for many of their creditor companies who would be unlikely to be willing to invest in other nations suffering similar problems to Greece.

The proposition’s claims that the austerity measures have totally failed are unfounded. Although it is true that the total debt % GDP ratio has not gone down, this is not as serious as the prop make out. The budget deficit is the main problem that needs to come down because a consistently high budget deficit is what will make the situation spiral out of control and make Greece default on its debts. There is nothing per se problematic with having a large total debt (look at the USA’s total debt of $10 trillion, or Japan’s much higher debt to GDP ratio of 230% which unlike in Greece has not resulted in high interest rates,[1] for example). The fact that Greece’s budget deficit has gone down from 16% to 9% is an encouraging sign of improvement.  In addition, the proposition are not contentious in their claims about the negative effects of austerity. What they have failed to demonstrate, however, is why defaulting is the only solution to the suffering Greek people and the inability of the austerity measures to have their desired effect. The austerity measures have failed thus far because they have been targeted at the wrong areas of the economy and because the Greek Government has not been implementing them properly. Hitting the private sector with high taxation has done nothing to fix the faulty public sector which is the real cause of the debt crisis. The Greek Government remains hugely reluctant to carry out redundancies and wage cuts within the public sectors, as well as privitisations. [2] Greece, therefore, must be made to see that they must fulfill their promises and actually tackle the public sector, while alleviating taxation from the private sector.  [1] Free Exchange, ‘Defying gravity’, 14 August 2012, The Economist,   [2] Babbington, Deepa: “Greek PM sings in tune, now must hit the hard notes”, Septembe 5 2012, e-kathimerini,

The situation in Ireland, Italy, Spain and Portugal is not as extreme as that faced by Greece. It is therefore highly unlikely that a Greek default would have as severe a domino effect as the opposition suggests. Greece is the main source of political and economic uncertainty in the Eurozone, and their departure would ease the situation, facilitate investors and allow for the Eurozone to rally strongly. [1]  [1] Ruparel, Raoul and Persson, Mats: “Better off Out? The short-term options for Greece inside and outside of the euro”, June 2012, Open Europe, 2012

It is not necessarily true that the whole banking sector in Greece would collapse. Given that the default would be orderly and take place within the context of the European Union, the ECB and European Commission would still provide substantial liquidity aid for Greek banks. Moreover it is not true that a devaluation of domestic currency necessarily leads to high inflation – this was not the case, for example, when Britain exited the European Exchange-rate Mechanism in 1992 and pursued a devaluation policy of the British Pound. [1] Lastly, evidence of recent governments that have defaulted suggests that even though some of the harms the opposition refer to may actualise, recovery generally follows fairly quickly, as was the case with Argentina, South Korea and Indonesia. [2]  [1] Ruparel, Raoul and Persson, Mats: “Better off Out? The short-term options for Greece inside and outside of the euro”, June 2012, Open Europe, 2012   [2] Becker, Garry: “Should Greece Exit the Euro Zone?”, The Becker-Posner Blog, 20.5.2012,

Even in the long-term, continued Eurozone membership for Greece is not sustainable. The size of their total debt % GDP ratio is such that even if Greece were to recover (eventually) with the current austerity measures, Greece would always be susceptible to yet another debt crisis in the event of a future global or European recession. Eurozone membership denies Greece fiscal and monetary policy freedom required to face economic shocks to prevent this from happening. We thus see that in the long-term growth is more sustainable for Greece without the Euro.

In receiving financial support from the ECB and European Commission to prevent the escalation of a major banking collapse in Greece, the Greek Government would be expected to continue with reforms of the public sector. What’s more, defaulting would grant the Greek Government more time to implement such reforms, making them more likely to succeed and less painful on the Greek populous. The oppositions fears are, therefore, unfounded.