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Tuesday, October 4, 2011

What If Greece Goes It Alone?

Oct 4th, 2011

Nouriel Roubini says they should do just that:

"Greece is stuck in a vicious cycle of insolvency, low competitiveness and ever-deepening depression. Exacerbated by a draconian fiscal austerity, its public debt is heading towards 200 per cent of gross domestic product.

To escape, Greece must now begin an orderly default, voluntarily exit the eurozone and return to the drachma."

I couldn't agree more.

Roubini lays out the pros and the cons of walking away and notes that recent examples, such as Iceland's transformation, could provide a model. However, what Roubini prescribes is going to be regarded as radical and even dangerous... to everyone but Greece.

A vast majority of Greece's current woes are due to externalized pressures. Most of the debt crisis which erupted in 2010 resulted from their heavy investment internationally in mortgage backed securities. What's more, even some Eurozone leaders, like Germany's Merkel, have stated outright that predatory hedging and credit default swap speculation elsewhere in the world dramatically expanded and has prolonged their agony.

Exit from the Eurozone is in Greece's sovereign best interests. Yet the global economy has coalesced around the demand that they not act in those interests. They are faced with choosing whether to do what is right for their people or doing what is demanded by the foreign financial institutions which hold their debt.

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