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Greece must leave the euro

The question is how.

The collapse of negotiations between the Greek government and the ECB, the Commission and the IMF should not come as a surprise. After seven years of economic depression, the Greek people decided to elect a government that promised to end austerity. This is perfectly understandable.

But European leaders reject the anti-austerity proposals, and foreign media often refer to the theory of ordoliberalism to justify the disastrous internal devaluation policy. This is a fundamental misunderstanding: Flexible exchange rates, and the belief that economic actors, including states, should be responsible for their actions, are central tenets of the intellectual tradition of ordoliberalism. The measures that would keep Greece in the eurozone contradict these principles and make a Greek recovery impossible.

Despite severe wage cuts, the Greek economy remains hopelessly uncompetitive. The situation of the Greek people, and especially the younger generation, is heartbreaking. The euro rescue policy has produced a lost generation of young Greeks. If European leaders continue to impose austerity on Greece, the young generation will stay trapped in desperate conditions without hope for a better future.

The Greek government is right in arguing that debt restructuring is essential. But it must be combined with sharp currency devaluation to make recovery possible. This means that Greece has to leave the eurozone. The question is how.

The conventional diagnosis of the Greek crisis ignores the root of Greece’s problems, namely its membership in the eurozone. Corruption and a lack of ample structural reforms could not cause a complete economic meltdown by themselves in such a short time. The first step in curing the depressed economy is to recognize the European monetary union’s negative economic consequences for Greece.

A Greek exit from the eurozone would restore competitiveness by external devaluation. This would help Greek exporters compete in global markets, significantly increase tourism and lead to a higher consumption of domestic products.

In the political sphere, Greece would regain sovereign control over its economic and political fate. Greek politicians would be free to decide upon the social and economic structure of its democratic model and the Greek people could hold them accountable. For these reasons, a Greek exit is the natural therapy ordoliberalism prescribes. Austerity as a solution for a country with an overvalued currency is not.

This therapy will be painful, but the risks can be mitigated and the potential costs reduced. It will require a coordinated, negotiated exit backed by the IMF, the ECB, the Commission and EU member states working closely with the Greek government. Only then can debt restructuring bring lasting effects. Any other scenario, especially a default within the eurozone, will merely postpone the inevitable and prolong the misery of the Greek people.

Contrary to some statements made by high-profile EU officials, there is no justifiable reason to claim that a Greek exit from the eurozone must lead to its exclusion from the EU. Some of the most economically successful member states of the EU, like Denmark and Sweden, are not members of the eurozone. European leaders should assure the Greek people that their country is a vital part of the European project and that its EU membership is unquestionable.

Politicians should also refrain from conflating the project of European integration with the fate of the monetary union in its current form. From the very beginning, the eurozone has never been an optimal currency area; it endangers the common market, the greatest achievement of post-war integration. A prolonged depression in southern Europe, caused by the euro, deprives European business of the common market’s huge potential.

The EU impacts its citizens’ lives well beyond the economic sphere, as programs like the Erasmus student exchange demonstrate. The non-monetary aspect of European integration should not be neglected.

It is in the common interest of all European citizens, but especially the Greeks, to put an end to the current form of the European monetary union. The euro was supposed to unite Europe but has instead deteriorated relations between European nations.

Only a negotiated Greek exit from the euro can liberate Greece from its economic depression and safeguard the well-being of the European project. Any kind of compromise resulting in softer austerity, even combined with a default within the eurozone, will only prolong the country’s suffering. More emergency summits would be unavoidable. The Greek drama would simply move on to its next act.

Joachim Starbatty is a member of the European Parliament for Alternative für Deutschland (AfD) and professor emeritus at the University of Tübingen.