...a blog by Richard Flowers

Wednesday, June 20, 2012

Day 4188: Not a Grexit But a Grey In?


The Greek elections have voted in a bunch who are vaguely more in favour of sticking to the austerity package and keeping the bailout money coming in.

Which is good because Greece needs to stay IN the Euro. But cut everything by 30%.

Seriously, if you can get past the fact that Greece is vastly UNCOMPETITIVE because they're stuck with a bad exchange rate, the benefits of being IN are enormous.

Cutting everything by say 30% is EXACTLY what you get with a DEEP devaluation: everyone's salary is cut by 30%, but all internal prices are cut by 30% at the same time. Everyone with savings, bad luck 30% goes up in smoke. But everyone with DEBTS, there's 30% less to pay on them. And yes, that includes the GOVERNMENT's debts, so bad news for those German banks.

Of course the cost of your imports JUMPS (causing inflation, probably, depending on how dependant on imported food and fuel you are). But YOUR goods become much cheaper for EXPORTS. Or (equivalently) it's cheaper for people with Euros to come and spend them in your country. Remember, everything is 30% cheaper.

And if you want to sell TOURISM then you want to make it EASY for your (RICH) neighbours to come visit with no fiddly money changing. So the advantage of staying IN the widely traded currency union is OBVIOUS.

Really, what's more worrying is the French voting in the Socialists who what to chuck the whole Franco-German recovery plan in favour of a SPENDING SPREE.

Honestly, democracy! Who's idea was that?

Oh, it turns out it IS the Greeks fault after all.

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