Ben Chu: Argentina managed to survive a huge default – so could Greece do the same?

 

Share
Related Topics

It's the inescapable question: would Greece now be better off outside the eurozone than inside? There are powerful and plausible arguments both ways. Those who answer in the negative point out that Athens is still, despite years of massive cuts, spending more than it takes in tax revenues.

This means that if the country were to default on its debts and leave the eurozone tomorrow, it would have to impose brutal austerity on the Greek public – even more brutal than the cuts it is being required to implement at the moment by its eurozone partners. A departure would also destroy the country's domestic banks, which are some of the biggest holders of Greek sovereign bonds.

This would cause domestic financial chaos which would merely deepen Greece's present depression. Those who say Greece would actually benefit from a departure argue that leaving the eurozone would be the first, painful, but necessary step on the road to recovery. If Greece left and introduced the drachma, its exchange rate would plummet, giving a giant boost to exports.

They point out that Argentina defaulted on its debts and dropped its currency peg with the US dollar in 2001 (when everyone said that country would be mad to do so) and went on to enjoy a long period of sustained growth.

The debate does not stop there. "Greece is not Argentina", proponents of staying in say.

There will be meagre benefits from devaluation because Greece's economy, unlike the South American nation, does not have abundant natural resources to export. The country would, they say, be cutting its own throat if it quit the eurozone.

"Nonsense", respond the advocates of exit. A devaluation will not only give a major fillip to Greece's large tourist sector, but would invigorate domestic industry too, since imports would collapse.

Devaluation would also help make the Greek labour market competitive – something that is proving impossible in the single currency straightjacket. "After a short thunderstorm, the sun will shine again," insists Hans-Werner Sinn of Germany's IFO institute.

In truth, no one can really be sure. While it is true that Greece's immediate situation would probably deteriorate if it defaulted in a disorderly fashion and crashed out of the single currency, it is impossible to say how far the country would fall and how long it would remain down.

The degree of agony following an exit would depend on how much, if any, support the country received from the International Monetary Fund and its former European currency partners. Should Greece stay or go? It's not just an inescapable question; it's probably an unanswerable one too.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + uncapped commission : SThree: Hello! I know most ...

Recruitment Genius: Graduate Web Performance Consultant Trainee

£22000 - £28000 per annum: Recruitment Genius: A Consultant trainee opportunit...

Ashdown Group: Marketing Executive - (Full marketing mix) - Knutsford

£22000 - £25000 per annum + Benefits: Ashdown Group: Marketing Executive - Knu...

Ashdown Group: Web Developer - ASP.NET, C#, MVC - London

£45000 - £55000 per annum + Excellent benefits: Ashdown Group: Web Developer -...

Day In a Page

Read Next
The Archbishop of Canterbury, the Most Rev Justin Welby, presides at the reinterment of Richard III yesterday  

Richard III: We Leicester folk have one question: how much did it all cost?

Sean O’Grady
David Cameron revealed his decision not to remain as Tory leader beyond 2020 to the BBC's James Landale last night  

Could the BBC be any more left-wing? First they employ loads of Tories, and then they're caught chillaxing in Cameron's kitchen

Mark Steel
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss
Tony Blair joins a strange and exclusive club of political leaders whose careers have been blighted by the Middle East

Blair has joined a strange and exclusive club

A new tomb has just gone up in the Middle East's graveyard of US and British political reputations, says Patrick Cockburn
Election 2015: Meet the top 12 wacky candidates seeking your vote in May

Election 2015

Meet the top 12 wacky candidates seeking your vote in May
Countdown to the election: Operation Save Danny Alexander shifts into high gear as the SNP target his Commons seat

Operation Save Danny Alexander shifts into high gear

The Chief Secretary to the Treasury didn’t forget his Highland roots in the Budget. But the SNP is after his Commons seat
The US economy is under threat because of its neglected infrastructure

The US is getting frayed at the edges

Public spending on infrastructure is only half of Europe’s, and some say the nation’s very prosperity is threatened, says Rupert Cornwell
Mad Men final episodes: Museum exhibition just part of the hoopla greeting end of 1960s-set TV hit

New Yorkers raise a glass to Mad Men

A museum exhibition is just part of the hoopla greeting the final run of the 1960s-set TV hit
Land speed record: British-built hybrid rocket car aims to be the fastest on Earth

British-built hybrid rocket car aims to be the fastest on Earth

Bloodhound SSC will attempt to set a new standard in South Africa's Kalahari desert
Housebuilders go back to basics by using traditional methods and materials

Housebuilders go back to basics - throwing mud at the wall until it sticks

Traditional materials are ticking all the construction boxes: they are cheap, green – and anyone can use them
Daniel Brühl: 'When you have success abroad, you become a traitor. Envy is very German'

Daniel Brühl: 'Envy is very German'

He's got stick for his golden acting career and for his beloved restaurant - but Daniel Brühl is staying put in Berlin (where at least the grannies love him)
How Leica transformed photography for ever: Celebrating 100 years of the famous camera

Celebrating 100 years of Leica

A new book reveals how this elegant, lightweight box of tricks would transform the way we saw life on the street and in fashion, on the battlefield and across the world