More Greek Out

An Argentine commenter on my Greece-leaving-the-euro post notes that Argentina, in addition to letting the peso drop, both defaulted on its debt and imposed temporary restrictions on bank withdrawals. Indeed. Something similar would have to happen for a euro exit to take place.

But bear in mind that the first piece is already a foregone conclusion: everyone knows that Greece won’t repay its debt in full. The problem is that even if the country defaults on its debt, it still faces the problem of wages and prices way out of line with the core euro countries. So devaluation is what you do when default isn’t enough.

As for the second point, the main argument against the possibility of a euro breakup has been precisely that any hint of exit would unleash the mother of all bank runs. So how could exit take place? I argued some time ago that it would have to take place in the context of a banking crisis that forces a temporary closure of the banks — something along the lines of the Argentine corralito — in any case.

This is why I find it hard to see any European government making a solemn, deliberate decision to leave the euro. But I can easily see how events could lead to a situation in which euro exit becomes the least bad option.