Calls for a Greek pullout ludicrous

17:04, June 08, 2010      

Email | Print | Subscribe | Comments | Forum 

The Greek sovereign-debt crisis and the attempts of the European Union to quell the simmering pot before it boils over is commanding international attention.

The sovereign-debt problem isn't in any sense the end of the eurozone. The foreign-exchange rate of the euro may fluctuate against other leading currencies, as is to be expected in a floating-rate regime, but Greece isn't going to withdraw from the eurozone, nor is it likely to be expelled.

Whatever the legal position, the view that Greece, or any other country in the throes of recession, should withdraw in order to benefit from devaluation of their currencies, is simply ludicrous. It is difficult to introduce a new currency at the best of times. But when the first item on the agenda of a new currency is likely to be a substantial devaluation, the mere suggestion might be sufficient to spark a civil war between creditors and debtors.

Given that all public as well as private-sector debts are denominated in euros, or other hard currencies, the introduction of a new drachma would provide little respite. It would probably cause the domestic banking system to collapse as its assets were devalued relative to its liabilities, and the government to default as the international community would hardly perceive such a move as being in its interests.

The trend is actually going in the opposite direction as small countries, whose currencies lack credibility and stability in unregulated foreign-exchange markets, long for the safety of a major currency with deep reserves.

A bailout provides a classic case of moral hazard, both for other governments as well as for banks, which knowingly buy high-yielding, but risky assets.

Second, even after all the political grumbling and foot-dragging, the eurozone governments had little option but to bail out Greece. Such is the involvement of German, French, Austrian and other banks in the Greek sovereign-debt market that the alternative would have been a rescue operation of domestic eurozone banks. The motive was self-interest, not altruism.

Hannes Androsch was Austria's finance minister between 1970 and 1981. He is the founder of AIC Androsch International Management Consulting in Vienna. The opinions expressed are his own.

Source:China Daily


  • Do you have anything to say?


Special Coverage
  • Premier Wen Jiabao visits Hungary, Britain, Germany
  • From drought to floods
Major headlines
Editor's Pick
  • Giant red lantern lights up in Tiananmen Square to celebrate the coming National Day on Oct. 1. (Xinhua/Li Xin)
  • A ceremony is held in Taipei, southeast China's Taiwan, on Sept. 28, 2011, to commemorate the 2,562nd birthday of Confucius (551-479 BC), a Chinese thinker, educationist and philosopher. (Xinhua/Wu Ching-teng)
  • The world's first Boeing 787 Dreamliner for delivery arrives at Haneda airport in Tokyo, capital of Japan, on Sept. 28, 2011. The Boeing 787 Dreamliner, whose buyer is All Nippon Airways (ANA), will implement a flight of ANA on Oct. 26 from Tokyo's Narita Airport to Hong Kong in south China. (Xinhua/Ji Chunpeng)
  • A Libyan National Transitional Council (NTC) fighter shows what is believed to be human jawbone found inside a mass grave near Abu Salim prison in Tripoli, Libya, Spet. 27, 2011. The NTC on Sunday said they had found a mass grave containing the bodies of 1,270 people killed by Gaddafi's security forces in a 1996 massacre at Abu Salim prison in southern Tripoli. (Xinhua/Li Muzi)
  • Rescue workers and local residents search for survivors after a building collapsed in old Delhi, India, Sept. 27, 2011. At least 10 people were killed and 35 injured when an old three-storey building collapsed. More than a dozen people are still feared trapped under the debris, police said. (Xinhua/Partha Sarkar)
  • A visitor has flying experience in the windmill castle of Jinshitan National Holiday resort in Dalian, northeast China's Liaoning Province, Sept. 27, 2011. The castle is a 23-meter-high building with 21 meters in diameter. The castle uses wind tunnel to make objects floating in the air. It is the first indoor stadium in China, which enables people to have flying experience. (Xinhua/Zhang Chunlei)
Hot Forum Discussion