Five ways of looking at the euro

The Greek debt crisis has rattled global markets, with the euro sliding to a one-year low on Wednesday. Predictions and proposals abound. Here’s what some top economists have to say:

Martin Wolf, chief economics commentator for The Financial Times, expresses “huge doubts” about the efficacy of the $146 billion EU-IMF bailout package, citing the increasing likelihood of Greece needing to restructure its debt in the coming years. Wolf points to the substantial challenges facing the eurozone, and cites the need for an effective, coordinated response to the spiraling sovereign debt crisis and a move toward a true fiscal union if the euro is to survive.

Bill Emmott, writer and erstwhile editor of The Economist, thinks that Greece should be kicked out of the eurozone to stop contagion and as a warning to other European retrobates that unless they start behaving they’ll face the same fate. The Greek bailout, he says, just encourages Portugal and Spain to come a-begging. What’s needed is an Anglo-Saxon approach — more deregulation and freer trade. The European way is on its deathbed.

Paul Krugman, Nobel Laureate and New York Times columnist, revised his view that the euro is irreversible, arguing that if Greece had its own currency, its devaluation could increase export competitiveness and reduce the pain associated with fiscal adjustment (i.e. public sector cutbacks, increased taxes or both). That was last week. Now that Greece has opted for savage austerity, Krugman says that the bailout might just work.

Benn Steil, Senior Fellow and Director of International Economics at the Council on Foreign Relations, doesn’t think the euro is going anywhere. “It would be national suicide for a country to try to leave the euro. If they were to leave, reintroduce their own currencies, this would necessarily mean default. To introduce a new currency or old currency would mean a significant devaluation that would make it certain that they couldn’t pay off their debts,” Steil says. On the question of whether a country can be kicked out of the eurozone, Steil says, “Nobody has the authority to do that and it’s not clear at all what that would achieve.”

Charles Wyplosz, Professor of International Economics at the Graduate Institute, Geneva, outlines a dark scenario that starts in Greece and spreads like a disease: the drop in public spending required by the bailout causes a recession which, in turn, deepens the deficit. Then comes the contagion. Just imagine, Wypolsz asks, one by one, each eurozone country falls into the same trap as Greece. Of course, Wyplosz says, like the good academic he is, “This may never happen, but then, it may.”

Related: What’s behind Greece’s debt crisis?

 
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