The last, somewhat technical, Specie-Flow post pointed out (well sort of) that countries such Greece in the European periphery now face a triple whammy: not only do they need to have a major real exchange rate depreciation to restore competitiveness lost over the last decade, and not only do they require a real exchange rate adjustment to overcome the effects of a sudden stop in external private funding; but they also require a real exchange rate adjustment to overcome the effects of a massive austerity package. TH can’t help but think that the pressure on the euro citizens is more than any voter can take. Its been said before here on Specie Flow, the time will come when the leaving the euro will no longer be considered a failure of policy and a loss of national pride. Rather, the euro will soon be seen by Europeans as the policy failure and national pride will dictate that countries leave.
Greece is a case in point. After six hours of talks with his potential coalition partner, Alexis Tsipras, Mr Samaras (Greek PM) said “I tried to form a coalition government with two goals: that the country remain in the euro and bailout policies change to include growth measures. I did what I could to get a result but it was not possible. As such, I have informed the president of the republic and handed back the mandate.”
It is increasingly looking like Greece must consider how to get out of the Euro without causing a further deterioration of the crisis. Or, to paraphrase DPK, how to say “Armageddon out of here” with out causing financial Armageddon. TH can’t help but think that time for such a plan is slip slidin’ away.
One option is to leave the Euro altogether, another strategy might be to borrow a page out of the old Bretton Woods system and establish a set of fixed but adjustable exchange rates for Europe. Maybe using tax cum subsidies to deliver the exchange rate adjustment in place of a nominal exchange rate adjustment. Who knows, but time for a credible exit plan is rapidly running out.
With more apologies to Paul Simon and co-writers, perhaps we need fifty ways to leave the euro —
You Just slip out the back, Jack
Make a new plan, Stan
You don’t need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You don’t need to discuss much
Just drop off the key, Lee
And get yourself free