World’s Top Greek Economists Tell Greece: Keep the Euro

ATHENS – The pressure on anti-austerity parties ahead of the critical June 17 elections not to renege on Greece’s reform deals with international lenders is building, with 11 Greek economists from around the world joining critics sounding the alarm that a Greek exit from the Eurozone would devastate the country. The group, in an open letter published in the newspaper Kathimerini, said the next government must honor its commitments to the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) which is putting up $325 billion in two bailouts, but has insisted on pay cuts, tax hikes and slashed pensions in return.
Anger against the austerity measures and the two once-dominant political parties which shared a brief hybrid government and supported them, the New Democracy Conservatives and PASOK Socialists, saw them repudiated in the stalemated May 6 elections which gave opponents 68 percent of the vote, but with none being able to get enough to form a government, leading to the second elections.
The economists, who include George-Marios Angeletos of the Massachusetts Institute of Technology and Dimitris Vayanos of the London School of Economics, stressed that the prospect of a Greek eurozone exit is still very real, despite reassurances by EU officials.
“The international community is monitoring our country with great concern and believes it very likely that it will default in a disorderly fashion and leave the Eurozone,” the letter added.
The only hope, the writers claimed, is that elections “lead to a government that will be supported by a broad range of political parties.” Such an administration must focus on confirming the country’s will to remain in the Eurozone, implementing crucial structural reforms and cooperating with foreign creditors to revise aspects of the debt deal and boost investment and growth.
They also took a shot at the populist tone of the campaign in which Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras is saying he wants to cancel the memorandum of understanding with the Troika but keep Greece in the Eurozone, what critics said is mutually exclusive rhetoric. The writers put it this way: “We would not like to see ignorance and populism lead the country to disastrous and irreversible choices.”
TSIPRAS STRIKES BACK
Meanwhile, Tsipras continued his anti-austerity mantra and denied that his party is a threat to the Eurozone, but repeated he would repeal the deal that is the only source of aid money for Greece after former Finance Minister Evangelos Venizelos, now PASOK’s leader, imposed losses of 74 percent on investors to write down Greece’s debt by $134 billion, closing the door on more loans from the private markets.
“The threat to the future of the euro does not come from Greece and certainly not from SYRIZA,” Tsipras said in an interview with Kathimerini. “Look at what is happening in Spain, look at the anxiety of Italy, at the increasingly prevalent belief that the Eurozone cannot survive in its present form without major changes,” he said calling for a European-wide solution to the debt crisis.
He reiterated his pledge to roll back wage and pension cuts included in the EU-IMF deal, but didn’t say where Greece – which is broke and with tax revenues sinking – would get the money to do it.  “We must break the vicious cycle of the crisis … this means scrapping the policies of the memorandum and the terms of the loan agreement,” he said, repeating his aim to nationalize key industries and freeze privatizations if he wins the polls.
But, he also added, “For us, exiting the euro is not an option. And it is not an option for anyone in the Eurozone. They should stop the fear-mongering,” he said. “The fact that PASOK and ND rejected any form of negotiation to stay in power does not mean there are no alternatives,” he said, refuting claims that his aim to renegotiate the debt deal is based on a false conviction that German threats of a Greek euro exit are a bluff.
The European Commission’s finance chief, Olli Rehn, said that Brussels wants Greece to remain in the Eurozone while EU President Herman Van Rompuy said Athens could only achieve this “while respecting its commitments.” Rehn added that “abiding by commitments remains the best option available to Greece.”
French Finance Minister Pierre Moscovici, who met with Rehn, was more direct. “If the Greeks themselves do not respect their commitment, then we would find ourselves in a situation which would be infinitely more complicated,” he said.
THE COST OF EXITING
If Greece were to leave or be pushed out of the Eurozone, the government would have to inject at least 259 billion euros, or $322 billion, into its already-troubled banks to keep them afloat, according to the Brussels-based research institute Open Europe. The rescue, which could come from other EU countries and the IMF, would be used to confront “a likely bank collapse and urgent cash shortage,” the group said, adding that it expected the next government to reach a compromise even if SYRIZA wins.
“Given the public support for the euro and the detrimental impact an imminent exit could have on the Greek economy, any new government emerging from the June 17 elections is likely to reach a deal with Greece’s creditors allowing the country to stay in the euro for now,” said Raoul Ruparel, head of Open Europe’s economic research. Open Europe, which maintains offices in London, was established by United Kingdom businessmen and has a vision for a “slimmed-down” EU that encourages free trade and cuts regulation, according to the organization’s website. The UK, however, does not use the euro and is heavily euro-skeptic and one of the group’s top advisors ran an anti-euro campaign.
(Sources: Kathimerini, Bloomberg)