Noah denkt™ - The Power of Balanced Reasoning
Accept a haircut on condition of a Grexit
Dialogue with the Alter Ego on the Syriza election victory in Greece, drafted and published on Feb 4, 2015

Question by Alter Ego of Noah denkt™ (AE): The election victory of Syriza in Greece on January 25 has
somewhat rattled the austerity landscape in Euroland. The Tsipras government has soon made it clear that it
will no longer accept the previous
troika bailout agreement and ask for changes in the current debt repayment
schedule. Now, N
oah denkt™ has previously already expressed its concern over the fact that EU leaders so far
haven’t had the courage to force a Greek exit (“Grexit”) from the Euro currency. How has Noah denkt™’s view
on this  evolved since then? After all, it cannot be denied that the Greek economy has made some progress
since the troika started to monitor local policy there. The annual GDP growth rate, for instance, is now at 1,9%
(reference Q3/2014) up from 0.4 in 2013. With this, albeit modest, number Greece ranks among the fastest
growing countries in the otherwise lackluster Euro-zone. So something has been done right here?

Answer by Noah denkt™ (Nd): No doubt, some progress has been made in Greece and the reforms that have
been implemented have been quite draconian. But the sad truth continues to be that Greece remains far, far
away from being competitive enough to afford a Euro currency. Its public administration still is closer to the
standards of developing countries than those of France, Finland or the Netherlands. Its reading/Math and
Science Pisa score ranks among the lowest in the OECD countries; and its gross R&D spending (0.579% of
GDP) was even in the hay days of 2005 closer to that of post-crisis Argentina (0.379 % of GDP ) than to that of
neighboring Italy (1.047% of GDP). In view of all this and the burgeoning debt level which Greece carries
around with itself (315.5 Billion Euros), it really doesn’t make sense to fool ourselves any longer believing that
Greece could one day be a self-supporting member of the Euro currency union.

This hasn’t always been your position though, has it?

Nd: It is correct that we at one point believed that a concerted national effort in Greece would be able to
a miraculous economic recovery of Latvian proportions. But after all the popular revolt that we have
seen in Greece since then (2010) it is really high time to give up that hope.

AE: A Grexit, nevertheless would likewise be terribly harsh on the Greek population. The new drachma would
probably lose half or more of its value relative to the Euro which would wreak havoc on inflation, on individual
purchasing power, and the country's economic output. In other words, the Greeks would suffer even more from
a Grexit than they have so far under the troika.

Nd: Clearly, the Eurozone would have to somehow help Greece in that rocky patch towards the new post-Grexit
normal. For instance, the Greek debt burden could in that case be substantially reduced or cut altogether.
Obviously, all these steps would be painful for the entire Euro-zone community. But at least this tragedy would
finally come to an end.

AE: This Grexit is not going to happen though, is it?

Nd: You are right, it is probably not going to happen. And that is largely due to the resistance of countries like
France and Italy. They believe that they are better off with Greece inside the Eurozone if only to have another
ally against German “rigidité”.

AE: So where does this leave us with respect to recovery hopes for the Eurozone?

Nd: Well, these recovery hopes continue to be somewhat dampened due to the opposition against a Grexit.
After all, it is only reasonable to expect that the unrealistic management of the Greek dilemma will only incite
other dreamers to continue to dream their tax-and-spend fantasies. So, the populist opposition against
structural reforms in Euroland will not go away. And growth will therefore not return in the proportions that it
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Greek exit form the Euro currency, Grexit, Greece leaving the Euro-zone, Syriza
government, confrontation with the Tsipras government, competitivity of Greece,
Greek versus EU competitivity, Greece suffers from Euro currency union  
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