The bottom line is this. Greece has no choice but to adopt much needed further fiscal reforms and suffer a long period of harse austerity if it is both to remain in the EMU and Germany continues to block the Eurobond. Regardless of whether Greece stays in the EMU, they must continue with fiscal reforms. They have no choice in that regard. The best situation for Greece would be for Germany, and in my opinion best for Germany too in the long run, to agree to the Eurobond. That would allow Greece to borrow at reasonable rates and permit it to lift itself slowly out of recession while continuing fiscal reform. They would still suffer some austerity measures, but those measures would be far more tolerable. Applying a Keynesian approach to the Greece economy is out of the question so long as Greece must borrow at 10% plus, on top of already heavy debt. Keynesian economics can not work if a countries debt is too high in the first place and thus no one will lend to them at affordable rates. Even if Greece had its own central bank and could thus implement quantitative easing on its own, it would not work well in their case. Their economy is too small and their fiscal imbalances still too great, and their debt to large relative to the size of their economy. And they would enjoy none of the benefits of a reserve currency nation. They would suffer mightily from a lack of foreign currency reserves. In a word, their economy would lack the requisite "Robustness" to pull off QE. Basically, they are screwed so long as there is no Eurobond. Things will only get worse for them. They can not recover, other than through harsh austerity, having to borrow at rates 7% or more higher than their partner nations. They will end up piling debt upon debt. They are stuck with quite severe austerity because they simply can not afford to borrow at those high rates. If they do, they will eventually be owned lock stock and barrel by the Germans, who will continue to pull the strings of their little marionette.
"they will eventually be owned lock stock and barrel by the Germans" Yes...Germany could have Greece as their own little vacation country in the south. The United States used to have such a thing in Cuba. Americans would go to Cuba and get a warm climate, beaches, gambling, prostitution and drugs... all served up by the US based Mafia. The Greeks could sell the country for its debt (which they are already doing), wait a few years and find a Castro to foment a revolution and take the country back...then they would be free of debt, have a lot of German paid for infrastructure and be free to choose who, if anybody, to align with. The Russians would take them in a minute. Actually this is exactly what the US, NATO and the EU fear will happen. Putin is watching. http://www.newsmax.com/John-Gizzi/greece-russia-bailout-eu-euro/2015/07/27/id/659056/
I would agree that is a possible scenario. But I think under those circumstances there would be intervention by the Nato nations before such a scenario could reach fruition. It is far more likely in my view, if Germany continues to block the Eurobond, and I think they will, that Greece will leave the EMU, but not necessarily the EU. By going back to their own currency they will be able to monetize a significant portion of their debt, which they can't do if they remain in the EMU. Even if they have to pay say 15-18 percent they can monetize enough of it over thirty years to get effective rates down to something they can handle. Their creditors would anticipate this, naturally, but nevertheless, in the end, could be quite happy with an effective yield 3-4 percent higher than they can get from other sovereign bonds. If I was advising them, I would advise them to do exactly that, i.e., leave the emu and monetize as much of their debt as they can. It would be well for them to initiate diplomatic talks with other Mediterranean nations and Portugal aimed at forming a Southern Europe-Mediterranean trade group with their own Central Bank and common bond. Their seems to exist a fundamental cultural difference that is forever going to make partnership with the Northern European and Scandinavian nations an uneasy alliance. As I already stated, they will have to continue fiscal reforms in any case, or no one will lend to them regardless of the rate. It must be obvious to all that the the Greek people will not put up with interminable servitude. Their only hope to right their economy is to get effective rates for borrowing down to something reasonable that their economy can handle...
The problem with Greece bringing back the drachma at this time is that no one will accept it. They would have to force the local population to accept a new Drachma and certainly no one internationally will accept drachmas to pay down debt... or for anything else. They could try to 'convert' debt to Drachma but that would really be no different than default. They certainly won't be able to use a new currency to buy food, fuel, fertilizer etc. If they had never joined the Euro they could have persisted in using the drachma and devalued it when necessary as did the Chinese with the Yuan... but that boat has sailed for Greece. The drachma solution is long past too late.
How would devaluing the drachma have helped them here? I'd think they'd be more concerned about imports rather than exports. http://www.investingreece.gov.gr/default.asp?pid=56
Not so sure about that, though I would agree it would be a not so easy transition. The drachma would float against the euro, it would cost the Greeks mightily to pay their debts in euros once the drachma is converted. But once you take monetizing into account it could be quite an advantage for Greece. I see another problem as being more serious and that is where would the necessary Greek bank reserves in foreign currencies come from?
Poland no longer interested in Euro http://www.cnbc.com/2015/09/12/euro-not-so-attractive-for-us-anymore-polish-finmin.html
http://www.stuff.co.nz/world/europe...nnot-cope-with-refugees-after-visiting-Lesbos http://www.usnews.com/news/world/ar...s-in-life-and-death-struggle-on-greece-island http://www.reuters.com/article/2015...ece-idUSKCN0SS1CD20151103#5XYr3ttGOBpDOiCm.97 Unfortunately the migrant crises in Europe is hitting Greece especially hard, making Greek recovery ever less likely. With all of this going on Greece still is being pressed on its response to the bailout issues: http://www.nytimes.com/2015/11/06/business/greece-debt-bailout.html I swear to God I would get up and go there if I didn't think I would be just another mouth to feed.