Deputy Director of the Adam Smith Institute, Sam Bowman, wrote a comment piece for CityAM on Greece's options, including leaving the euro, as its economy continues to suffer.
After the failure of the new Greek finance minister’s tour of Europe’s capitals this week to produce a workable debt deal, Greece’s situation now seems terminal. Greece has an unemployment rate above 25 per cent, a debt-to-GDP ratio of almost 200 per cent and deflation of 2.6 per cent. The country’s economy has shrunk by 23 per cent since 2008.
The big mistake of the Troika – the European Union, European Central Bank (ECB) and International Monetary Fund (IMF) – was to assume that “structural reforms” to the Greek economy, tied to massive bailouts in 2010 and 2011, would be enough to generate growth in the face of persistent deflation.
To be sure, those reforms were desirable. Labour market liberalisations have made it cheaper to hire and fire workers, boosting employment, and pension reforms have improved Greece’s long-term fiscal position.