The assembled professors of the Alma Mater have given us their collective wisdom on the Greek crisis:
The institutions have to agree to a relaxation of fiscal austerity, at least until Greece is on the recovery path. Austerity during a recession is the wrong policy as it deepens the recession. Continuation of the stringent austerity measures implemented by Greece is delaying recovery. More fiscal austerity could fail the creditors too, if recovery is so slow that the fiscal deficit increases. Public investment has collapsed completely and providing more funds for investment projects that can improve the infrastructure and create jobs should be given priority. Although some progress has been made, further structural improvements are necessary, including pensions and VAT, anti-corruption, tax compliance, and institutional reform of product and labour markets. It is important that the Greek government acknowledges that there is still a lot to be done and comes up with credible proposals. The Greek economy is not likely to recover as long as there is still significant uncertainty about the future and there is no credible path towards a situation in which the Greek debt is sustainable. It is essential to achieve an early agreement to get Greek debt levels to sustainable levels, even if it is to be conditional on progress elsewhere. Conditionality on structural improvements is a good way forward.
Well, yes, OK. Greece should do all of those supply side reforms, lower the relative wages and thus get the economy booming again. Or we could heed the wisdom of Milton Friedman in the quote there. Instead of having to have this internal devaluation, this heavy austerity needed to bring down sticky prices like wages, we could just have a change in one single price in the economy, the external value of the internal money. You know, a devaluation.
Amusingly, this is one of the times that Friedman agrees with Keynes, even with the New Keynesians of today: prices are sticky, notably downwards, and wages especially so. Thus an economic policy which depends upon pushing down wages is going to require a great deal of pain to work.
Better, by far, not to have had the euro in the first place.
Yes, your humble writer here is extremely biased on this subject. But also correct.