Tags: Roubini | Greece | Default | Abandon | Euro

Roubini: Greece Should Default, Abandon Euro

Monday, 19 Sep 2011 02:11 PM

Economist Nouriel Roubini says Greece should default and leave the euro.

"Greece is stuck in a vicious cycle of insolvency, low competitiveness and ever-deepening depression," Roubini writes in the Financial Times. "Exacerbated by a draconian fiscal austerity, its public debt is heading towards 200 percent of gross domestic product."

"To escape, Greece must now begin an orderly default, voluntarily exit the eurozone and return to the drachma."

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Nouriel Roubini
(Getty Images photo)
A Greek exit may have secondary benefits, Roubini notes, such as providing other crisis-stricken eurozone economies a chance to decide for themselves whether they want to follow suit, or remain in the euro, with all the costs that come with that choice.

According to Roubini, the recent debt exchange deal Europe offered Greece was a rip-off, providing much less debt relief than the country needed.

“If you pick apart the figures, and take into account the large sweeteners the plan gave to creditors, the true debt relief is actually close to zero,” he says. “Its best current option would to reject this agreement and, under threat of default, renegotiate a better one.”

However, even if Greece received real and significant relief on its public debt, it cannot return to growth unless competitiveness is rapidly restored, says Roubini — and without growth, Greek debt will stay unsustainable.

All of the options that might restore competitiveness — a sharp weakening of the euro, a rapid reduction in labor costs or a rapid deflation in prices and wages — “require real currency depreciation,” Roubini says.

MarketWatch reports that Greek Finance Minister Evangelos Venizelos said it was crucial that Greece take steps needed to meet its 2011 and 2012 fiscal targets in order to avoid being made a scapegoat for the eurozone crisis.

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Economist Nouriel Roubini says Greece should default and leave the euro. Greece is stuck in a vicious cycle of insolvency, low competitiveness and ever-deepening depression, Roubini writes in the Financial Times. Exacerbated by a draconian fiscal austerity, its public...
Roubini,Greece,Default,Abandon,Euro
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2011-11-19
Monday, 19 Sep 2011 02:11 PM
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