Sunday, May 8, 2011

Top German Economist Says Greece Should Ditch the Euro

"If Greece were to exit the euro, it would be able to devalue its currency and thus become competitive once again," Hans-Werner Sinn, head of the Munich-based Institute for Economic Research, said in the Sunday edition of the Frankfurter Allgemeine newspaper.

According to Sinn, heavily-indebted Greece is heading for a banking crisis whether it keeps the euro or not. If Athens, however, stayed with the euro, the economist claims, there would be no way to rescue the economy in the long run.

"If Greece decides to attempt a so-called internal devaluation - that is by cutting salaries and prices within the country - it would risk setting off civil war," Sinn said. Very true.

But, while there are very good reasons to leave the eurozone, Sinn's advise would be completely destructive for Greece in that he is essentially calling for Greece to dump the euro for its own currency,so that Greece, via the new currency, can inflate its way out of its debt crisis--which of course would mean very high price inflation in Greece.  The exact opposite of what Greece needs, which is a stable currency is what Greece needs.

It make sense for all countries to exit the eurozone not only debtor countries. The poorly constructed euro results in pressures on prudent countries such as Germany to bail out spendthrifts like Greece. That the average German citizen does not feel an obligation to bailout Greeks do so is understandable.

Greece should have its own currency, which they should keep in stable supply, but the Greek government should also go into bankruptcy and resolve the debt problem that way. Let the banksters who bought the Greek debt take the hit, rather than Greeks, and certainly not the Germans.

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