Would Greece flounder if it left the Eurozone? Sam Bowman argues NO in CityAM

Deputy Director of the ASI Sam Bowman took part in the CityAM Forum debate arguing that Greece would not necessarily flounder if it left the Eurozone.

A Greek Eurozone exit would throw the country’s banks into crisis, but it may still be its least-worst option. The European Central Bank has kept money tight across the Eurozone since 2008, but this has been most acute in Greece, where nominal spending collapsed during the financial crisis and has barely recovered since. This means that wages have had to fall in cash terms across the board for employment to recover, and they still have a long way to go. This process takes an excruciatingly long time because firms tend to prefer to fire some workers instead of cutting all their staff’s wages. That means many more years – perhaps more than a decade – of high unemployment. If Greece left the euro it could get around this process by devaluing its currency, as it and the other southern European states used to do before the euro. It would be very painful in the short term, but that may be preferable to the long-term depression that the country now faces.

Read the full article here.