New York Times columnist Paul Krugman attacked the Greek government for putting its people in the untenable position of either accepting even harsher austerity measures or abandoning the euro altogether, claiming that the currency "strapped Greece in an economic straitjacket."
"Cases of successful austerity," he argued, "in which countries rein in deficits without bringing on a depression, typically involve large currency devaluations that make their exports more competitive." Canada did so in the 1990s, and Iceland did so even more recently -- but in both cases, those countries had their own currency, which Greece currently doesn't.
If Greece decides to leave the currency coalition, it risks further financial chaos -- which is why the Greek government will likely accede to even harsher austerity measures. But, Krugman wrote, it shouldn't:
First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done.
Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence. Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.
So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.