What Will Happen If Greece Leaves The Eurozone?

Jun 5, 2012
Originally published on June 5, 2012 7:53 pm
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This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.


I'm Audie Cornish.

And we turn now to the case in favor of austerity in Greece. Here's a little background. In a couple of weeks, Greece will hold its second parliamentary election of the year. They're holding another one because the last election left the two biggest parties short of a combined majority. Prior to that May election, the center left Greek Socialist Party, known as PASOK, and the center-right New Democracy Party had joined together to approve European terms for a bailout. The government was broke and at risk of defaulting on its debt.

Europe imposed fiscal discipline, austerity and deep cuts in public payrolls and benefits, all of which meant Greece could continue to use the euro.

SIEGEL: Being in the eurozone is very popular with the Greeks but Europe's terms were very unpopular. And in the May election, a party called Syriza, the coalition of the Radical Left, ran against the austerity deal even though they favored keeping the euro. That party ran a surprisingly strong second and it's now in a close race for first with New Democracy which, as Audie just said, was in favor of the austerity plan.

A couple of weeks ago, we were the case against austerity from an economist who supports Syriza. Today, economists Gikas Hardouvelis, who was an adviser to the previous government of the coalition and was involved in the negotiating that package.

Welcome to the program.

GIKAS HARDOUVELIS: Thank you, Robert.

SIEGEL: And let me ask you, the Coalition of the Left, running once again, says Greece can have the euro without the austerity package. First of all, is that possible?

HARDOUVELIS: You cannot have your cake and eat it, too. In order to stay in the euro, we have to follow the structural reforms with fiscal discipline.

SIEGEL: But, in fact, doesn't the right of center New Democracy Party, and in fact the socialist, as well, don't they both now say that Greece should say stay in the eurozone but they should renegotiate, get more slack from the country's creditors. Aren't they say something that's rather similar to what Syriza, the Coalition of the Left, is saying?

HARDOUVELIS: Well, it is reasonable to change a little bit the terms of the fiscal discipline and give the country more time. Because, as you know, a restrictive fiscal policy can only lead to a worse recession. But it's another thing to say we do not follow the structural reforms and we do our own thing, without paying attention to the counterparty and the counterparty is giving the money.

SIEGEL: But what would you say to a Greek voter who reasoned that Europe needs Greece in the eurozone because if they leave, suddenly, euros in Spanish bank accounts and Portuguese bank accounts, possibly Italian accounts, will start looking less attractive than euros in Germany or Holland. In effect, it could be the death of a common currency. So, elect people who will take Germany and the others to the brink, the people who drive the absolute toughest bargain and threaten the worst.

HARDOUVELIS: Well, there is a point to that, that if Europeans decide to let Greece go then they would have shown the door to others. I expect that some compromise will take place, particularly on how quickly the fiscal targets will be attained. The IMF always said, come on, give the Greeks more time. And even in this last package that were negotiated, they were the softies. They wanted the program to go further out to the year 2015. This is the item I think that's going to be negotiated.

SIEGEL: I'm curious how you square the fact that unemployment in Greece is over 20 percent, the economy is shrinking and austerity, according to many economists - and I believe, if I heard you right, according to you - may be the worst remedy for the country right now. But it's the remedy that your creditors have demanded and therefore, to keep your word, you have to go along with it. How does one balance those two concerns?

HARDOUVELIS: Well, there is not one voice in Europe, as you know. The hardliners thought from the beginning of the Greek crisis that if they become strict, if they fix the architecture of the eurozone for the long run, then the crisis would go away. But they made the crisis worse. So that was their mistake. Now they have understood it and I think Europe is ready for a change. Greece ought to take advantage of this.

SIEGEL: Well, Professor Hardouvelis, thank you very much for talking with us today.

HARDOUVELIS: Thanks to your listeners.

SIEGEL: Economist Gikas Hardouvelis was an adviser to the coalition government that negotiated the austerity terms with Greece's creditors. He says there should be some renegotiation but the Greeks have to live up to that deal. Transcript provided by NPR, Copyright NPR.