Sir,
In dismissing out of hand any benefits to Greece from a Greek exit, Martin Wolf fails to draw a distinction between two different scenarios. (“Mythologies that block progress in Greece”, April 22). The first is that in which a Greek exit provokes exchange controls, default and political turbulence. The second is where a Greek exit is made after exchange controls, default and political turbulence have already occurred.
In the first case, one can certainly agree with Mr Wolf that any benefits to Greece from extricating itself from the euro are likely to be outweighed by the cost of the occurrences that he correctly suggests would follow in its wake. However, in the second case, one must question why Greece should not at least enjoy the advantages of breaking out from the euro straitjacket if it were already to have defaulted and to have had to resort to capital controls. At least then, having already incurred the costs, it would have the benefit of its own exchange rate policy to restore international competitiveness and to redress its budget imbalances without further aggravating the domestic economic recession.
Considering that the capital flight and deterioration in its public finances is soon very likely to force the country to both default and impose capital controls, the Greek government would be well advised to examine whether leaving the euro might not then at least in part offset the cost of those occurrences that would in any event have taken place.
Desmond Lachman, American Enterprise Institute, Washington, DC, US
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