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What Grexit will Mean for the World Economy



Greece exiting the Euro, or “Grexit” as it’s become known in the financial news will have profound implications for the world economy, but it may be the only viable option.

When we look at Greece’s current woes, we have to acknowledge that the Euro was more of a way to advance a utopian political project than a sound financial decision. In the same way, like many utopian political projects, it was destined for failure.

The Euro was conceived as a way to bring about closer political union between the nations of Europe. This is evidenced by several documents which have surfaced of late, as well as the push for further integration as a result of the current problems.

For Greece, their currency is ridiculously overvalued. Whilst the Euro might be right for the northern European countries, it acts as an economic strait-jacket to Greece.

Tax collection in Greece is very lax. Many individuals do not even bother to fill in a tax return. There are also cases of public sector workers being paid 60,000 Euros a year for manual labor. This being said, Greece was bound to fall into debt. The problem is that now it’s too far in debt to ever work itself out of the deep hole it has fallen into.

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If Greece still had the Drachma, it could devalue its currency and try to print its way out of this crisis. Setting the printing presses to run more currency is never ideal, but sometimes there is no other option. Arguably, the United States’ monetary policy is following this same ideal – print more money as needed. With Greece being constrained in the Euro, it has no control over its own monetary policy.

Iceland shows the way forward in this regard. The country defaulted and is now quickly on the way to recovery. The problem with Greece exiting the Euro, is that in a moment of prolonged political folly, EU nations threw vast piles of money at Greece hoping they could bail it out. Albert Einstein famously said that “The definition of insanity is doing the same thing over and over again, while expecting different results.”  In essence, this is what the leaders of the EU have done.

Some countries are very exposed to Greek debt. For example: France is exposed to Greek debt to the tune of 93 billion Euros. France is already struggling with its own finances. Its new leader Hollande, threatened to reverse the promised austerity measures and carry on spending huge amounts of money. If Greece defaults and leaves the Euro (and most likely the European Union) it threatens to take countries like France with it. It also threatens to take those other debt ridden Southern European nations with it, as Spanish bond yields have fluctuated wildly on a daily basis. This contagion could spread across the Atlantic to the heavily indebted United States, and possibly even to China.

Because the Euro was predominantly a political currency, dissenting voices have been ignored and cast aside as “xenophobes” and “racists”. The language of political correctness was used as a tool to overrule common sense. People are now waking up to see how fundamentally anti-democratic and flawed the entire European project is. Many of the people of Europe want their countries back, and their right to self-determination. So, if a Greek exit does cause profound financial hardship, at least it will allow all EU countries to start again. Europe has overcome much worse in the past.

The sooner we see Greece exiting the Euro, the sooner we will find out the size of the task ahead of the world economy, rather than continuing to chase good money after bad and prolonging the economic pain.



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