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Experts Try to Chart Path for Exit From Currency May 17, 2012

Posted by proeconomia in Main, Monetary policy, News on Greece, On the crisis, Opinion.
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Read this one from the WSJ. Some comments that have appeared before in our post re-appear here as well. Here are two interesting excerpts:

“Countries have defaulted, devalued, or even withdrawn from a broader monetary union in the past. But none has done it all at once—and certainly not an economy so deeply integrated into global financial markets.”

Economists say that to become competitive, Greece needs to devalue by at least 40%. That means imports such as oil or cars would become almost twice as expensive, while a German could vacation on Crete for half the price. But many pitfalls await before Greece would find itself in that position. Even stripping out debt and interest payments, the Greek state is not taking in enough taxes to pay its bills. That means it either has to cut pensions and other benefits more quickly than under its bailout program or print more money. The latter option would risk fueling inflation already high from increases in import prices—eliminating some of the benefits of devaluation.”

 

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