Nobel Prize-winning economist Paul Krugman has expressed his support for the Greek government’s decision to carry out a referendum next week in an article for the New York Times.
In his article Krugman begins by noting that “it has been obvious for some time that the creation of the euro was a terrible mistake” and that “Europe never had the preconditions for a successful single currency” before explaining how the creditor demands for harsh austerity have failed to yield the necessary result.
Mr. Krugman argued that despite carrying out budget cuts, raising taxes and reducing the public sector by 25%, which if all added up would be “more than enough to eliminate the original deficit and turn it into a large surplus”, the Greek economy collapsed “largely as a result of those very austerity measures, dragging revenues down with it”.
“The problem with Grexit has always been the risk of financial chaos, of a banking system disrupted by panicked withdrawals and of business hobbled both by banking troubles and by uncertainty over the legal status of debts. That’s why successive Greek governments have acceded to austerity demands, and why even Syriza, the ruling leftist coalition, was willing to accept the austerity that has already been imposed. All it asked for was, in effect, a standstill on further austerity” he added.
The economist then explained that the Greek people should vote “No” in Sunday’s referendum for three reasons: “First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done. Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence”.
