21 July 2013

Wolfgang Münchau: A Grexit is starting to look more feasible for Athens

"I would like to ask all of you not to continue at this time this discussion on a new haircut ... It is not in your interest.” So said Wolfgang Schäuble in Athens last week. I do not blame Germany’s finance minister for refusing to discuss a Greek debt write-off at this time. His country’s federal election is only two months away. Given Berlin’s approach to crisis resolution, I struggle to think of a more certain way to lose the vote than to say: “All right, then, let’s start to be realistic right now". But Mr Schäuble went a step further in his remarks by raising the Greek national interest. It is, of course, for the Greeks themselves to define their own interest.

The most one could do as an outsider would be to try to speculate about a narrower version of this question: would it be economically rational for Athens to follow the path outlined by Mr Schäuble? Alternatively, should it get ready to leave the eurozone? Or try to default inside the eurozone?

My criticism of eurozone policy towards Greece is not the harshness of the adjustment but its fundamental macro-economic illiteracy. At its heart lies the delusion that Greek debt could be rendered sustainable. But the reforms – and, yes, the austerity as well – were inevitable. There is an irony in this. Reforms and austerity constitute simultaneously a precondition to stay in the eurozone, and a precondition for a departure.

This leaves Greece with two options. The first is to reform and default inside the eurozone – a strategy that requires willing accomplices in other European capitals and in the European Central Bank. The second is to reform and default outside the eurozone – a decision Greece could take unilaterally, provided the macro-economic conditions are right.

The second has not been possible – until now. But Mr Schäuble’s option of reforming and not defaulting makes sense only from his point of view. It is not an option for Greece.

Of course, the realisation that a departure from the eurozone may be economically feasible, or even advantageous, may count for nothing.

A country may decide to stay inside the eurozone for political or security reasons. But surely we are at a different stage of debate when an exit becomes economically viable. That has not been the case so far. Not for Greece, nor for any of the other countries in crisis. And when there is real choice, outcomes become harder to predict.

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Comment by Yanis Varoufakis, 24.7.13

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