In an opinion article in Bloomberg, economist Ashoka Mody argues that it is Germany that should leave the Eurozone and not Greece. Mody claims that countries with so divergent economies should not have entered into a common currency union in the first place. He claims that the deal Greece reached with its EU partners and creditors is similar to the previously failed ‘medicines’ prescribed to help the country’s recovery. Only it did the exact opposite, as it drove Greece’s economy into the ground.
He points out, however, that Europe’s lead creditor, Germany, by putting the question of a Greek exit on the table has broken a political taboo. For decades politicians have pushed the idea that the common currency was a symbol of European unity, even though they knew its foundations and structure were flawed right from the outset, as Cambridge professor Nicholas Kaldor had pointed out as far back as 1973. As a result of the Greek crisis and the gridlock the two found themselves in, EU politicians came to the realization on July 11 that it would not be a bad idea after all for a member state to abandon the common currency area, if an agreement were impossible to reach.
Mody turns the question of who should leave the Euro and who should stay around, suggesting that the effects of a Grexit would quite possibly lead to the unravelling of the edifice, as soon Portugal, Italy and weaker economies would most likely follow and see their currencies devalue making it more difficult for them to pay off debts in euros. This would trigger a cascade of defaults on the continent. In that scenario every one would lose.
However, in the event Germany exited the Eurozone this would cause a devaluation of the value of the Euro, thus boosting the competitiveness of the weaker peripheral economies. “A weaker Euro would give them the chance to jump start growth”. He says that if, as would be likely, other northern European countries like Holland, Finland and Belgium would follow Germany and adopt their national currencies, the euro would depreciate even further.
The disruption from a German exit would be minor, he stresses because a deutsche mark would mean more buying power for imports into Germany. He argues that less competitive German exports would eventually be beneficial for Germany too in the long run, as the country’s constant current account surplus weakens world growth.
He ends by pointing out that the largest gain would be a political one, as Germany would reverse the image of a bully who imposes his will on others through economic force.