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Greece: ‘Creditors’ rule must end or we do an Argentina’

There seems to be some confusion here at myfdl regarding what happened to Argentina after it defaulted on its debt and stopped pegging its currency to the U.S. dollar. This is important because Greece is in a nearly analogous debt/Euro situation, and I think should definitely be considering ‘doing an Argentina.’ Three paragraphs written by Mark Weisbrot back on May 11 clear things up. In fact, Argentina did extraordinarily well after renouncing its debt and escaping an over-valued currency (emphasis added):

The experience of Argentina at the end of 2001 is instructive. For more than three and a half years Argentina had suffered through one of the deepest recessions of the 20th century. Its peso was pegged to the dollar, which is similar to Greece having the euro as its national currency. The Argentines took loans from the International Monetary Fund, and cut spending as poverty and unemployment soared. It was all in vain as the recession deepened.

Then Argentina defaulted on its foreign debt and cut loose from the dollar. Most economists and the business press predicted that years of disaster would ensue. But the economy shrank for just one more quarter after the devaluation and default; it then grew 63 percent over the next six years. More than 11 million people, in a nation of 39 million, were pulled out of poverty.

Within three years Argentina was back to its pre-recession level of output, despite losing more than twice as much of its gross domestic product as Greece has lost in its current recession. By contrast, in Greece, even if things go well, the I.M.F. projects that the economy will take eight years to reach its pre-crisis G.D.P. But this is likely optimistic — the I.M.F. has repeatedly lowered its near-term growth projections for Greece since the crisis began.

Weisbrot’s article is another must read, as it points out the insanity and inhumanity of negative growth as, unbelievably, the actual economic strategy being employed now by the ECB/EU for creditors and against its debtor nations:

There is also the idea that Greece — as well as Ireland, Spain and Portugal — can recover by means of an “internal devaluation.” This means increasing unemployment so much that wages fall enough to make the country more internationally competitive. The social costs of such a move, however, are extremely high and it rarely if ever works. Unemployment has doubled in Greece (to 14.7 percent), more than doubled in Spain (to 20.7 percent) and more than tripled in Ireland (to 14.7 percent). But recovery is still elusive.

Greek unemployment is now up to 16%, and I bet the other figures have grown too. Bottom line should be, either the EU/ECB offers Greece and others in the same boat economic _growth_ or those countries should renounce their debts and leave the Euro. (Weisbrot also explains in the article why those twin moves necessarily would need to be done together if the escaping country wants to generate economic growth.)

What I get from Weisbrot is that it is not sovereignty that should be the bottom line, but this: if we’re going to lose our economic sovereignty to the multi-state entity called the EU, then that entity’s main priority _must_ be economic growth rather than paying off gambles made by investment bankers and similar. ‘Creditors’ rule must end or we do an Argentina’ sounds like a plan.

(By the way, as we can see from any sample of the business press, the Greek government is currently taking the opposite, screw us please but not so hard posture, toward the European bankers. It’s not time for Greece to ‘turn on the charm’ for the European central and private bankers, it’s time for real threats and ultimatums.)

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