Tags: Roubini | Greek | Eurozone | Exit

Roubini: Greece Must Leave Eurozone Right Now to Contain Damage

Thursday, 17 May 2012 02:58 PM

Greece needs to abandon the currency in a quick and controlled manner involving its eurozone neighbors and the International Monetary Fund, says New York University economist Nouriel Roubini.

Postponing the country's default and exit will create even more market turmoil down the road, and the world should take the pain today and avoid a catastrophe tomorrow.

"Postponing the exit after the June election with a new government committed to a variant of the same failed policies (recessionary austerity and structural reforms) will not restore growth and competitiveness. Greece is stuck in a vicious cycle of insolvency, lost competitiveness, external deficits, and ever-deepening depression," Roubini writes in a Project Syndicate column.

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"The only way to stop it is to begin an orderly default and exit, coordinated and financed by the European Central Bank, the European Commission, and the International Monetary Fund (the 'Troika'), that minimizes collateral damage to Greece and the rest of the eurozone."

The Troika recently granted Greece access to $172 billion in bailout money in exchange for commitments to streamline its bloated public sector, namely through politically unpopular spending cuts, tax hikes and public-sector layoffs.

The economy has yet to grow although a large swathe of the country is suffering from economic downturn they say is made worse by austerity measures.

Recent elections put leftist and other fringe party candidates in power at the expense of traditional parties New Democracy and PASOK, which made talks forming a coalition government end in collapse, thus forcing a new round of elections in June seen by many as vote against austerity and a tipping point to Greece's exit from the currency zone.

Do it now, Roubini says, as one thing is certain, both bailouts and austerity aren't going to bring growth, which is what Greece needs.

"Even with significantly more public-debt relief, Greece could not return to growth without rapidly restoring competitiveness. And, without a return to growth, its debt burden will remain unsustainable," Roubini says.

"But all of the options that might restore competitiveness require real currency depreciation."

Outgoing Greek Prime Minister Lucas Papademos has said it would be "disastrous" for Athens to outright reject the EU-IMF bailout.

"A unilateral rejection of the country's contractual obligations would be disastrous for Greece, leading unavoidably outside the euro and possibly outside the European Union," Papademos says in an open letter, as reported by Reuters.

"The decisions we take could seal Greece's course for decades."

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Thursday, 17 May 2012 02:58 PM
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