“I don’t want to hear your life story when you ask a question,” BBC presenter and debate moderator Zeinab Badawi warned the large audience at the Hellenic Cosmos theater in Athens on Tuesday night before the cameras started rolling for one of the most interesting discussions the city is likely to host this year. It was certainly not a night for personal tales. This was about the story of a country and its dramatic fall from grace and economic stability.
The subject of the debate – organized by Intelligence Squared – was whether Greece should remain in the euro or return to the drachma. What exquisite timing that the debate should take place on the same day the Eurogroup agreed on a new bailout for Greece, one which some think will be enough to keep the country in the single currency and others believe is bound to drive Greeks back to the drachma.
Arguing that Greece should quit the euro were omnipresent US economist Nouriel Roubini and University of London economics professor Costas Lapavitsas. In the other camp, former International Monetary Fund official Miranda Xafa and colorful British MP Denis MacShane argued Greece should remain in the eurozone.
Roubini has supported for some time that Greece should return to the drachma. He recently predicted the country could be forced out of the euro within a year. His argument on Tuesday night was just as blunt and consistent. The man famed for warning about the imminent financial crisis in the US when few others did pulled no punches in describing the economic destruction that Greece faces if it remains in the euro, despite the latest bailout.
“The medicine of the troika is making the patient sicker and he will die,” said Roubini. “You need jobs, income and competitiveness.”
He said the austerity measures that Greece has to adopt in order to qualify for further loans would send the economy into a death spiral that would make it impossible to conduct the reforms that the eurozone and IMF have demanded of Greece.
“Structural reforms in the short term will only make the recession worse so the debt ratio will become larger and the debt dynamics unsustainable,” he told an audience of some 1,200 people. “Even after the restructuring of Greece’s debt, the country won’t have growth, and it’s easier to do structural reforms with growth.”
Lapavitsas was also critical of the troika’s formula for tackling the Greek crisis. “The holy trinity of liberalization, privatization and austerity has not worked in Greece,” he said, adding that the projected growth rates of 2 and 2.5 percent of gross domestic product for the latter half of this decade would not have an impact on the country’s unemployment problem.
“Greece needs to cut loose,” said the Greek economist, arguing that as long as Germany keeps its wages low, Greece would have trouble being competitive.
Lapavitsas identified the future of the Greek banking sector as they key obstacle in the way of a euro exit. He said the new bailout would provide the banks with 30 billion euros but would not give taxpayers any control over how they are run. His suggestion that banks should undergo a period of “sustained [public] intervention” did not sit well with some people in the audience.
MacShane provided the night’s funniest moments by referring to French President Nicolas Sarkozy’s “high heels” and economists as “knowing 365 ways to make love even though they have never been with a woman.”
The Labour Party politician struck a note for European solidarity, expressing fear that if the eurozone let Greece tumble to its fate, it would be the beginning of the “balkanization of Europe.”
“Orthodox economic thinking outside Greece should not force the country out of euro,” he said. “Giving the drachma back to Greece won’t make any difference. Europe needs a change of monetary policy.
“European solidarity is not about letting Greece die. That is what staying in the euro is about.”
Xafa said that Greece was paying the price for deluding itself when it joined the euro. “Joining the euro created the misconception that the Greek standard of living could converge with Europe in one leap,” she said. This could not be fixed through devaluation, Xafa argued, but only through structural reforms. This means that more pain is inevitable, she added, while stressing the “chaos” that a euro exit would cause.
“With or without the drachma, the Greek economy will have to suffer a decline in wealth and GDP,” the ex-IMF official said. “The new program allows Greece to have a soft landing.”
The evening’s most interesting exchange came when Xafa raised a point that foreign economists often miss when they weigh up the pros and cons of Greece returning the drachma.
“The corrupt political establishment led Greece into this mess,” she said. “If you offer the printing press to them, they’ll go back to business as usual.”
Roubini, stressing that the social effects of a depression would make it impossible to remain in the euro, countered that membership of the single currency, which came with certain fiscal guidelines, did not prevent Greek politicians running up the country’s debt. He said that if Greece had its own currency, the market – from which the government would have to borrow – would impose its own form of discipline.
“The problem is not the politicians, they’re an outcome of the process,” said Lapavitsas, who encouraged the audience to form new political movements. He admitted that he is considering getting involved in the political process himself.
The debate emphasized that the euro is very much the story of Greece. How it joined and where things went wrong tell you almost all you need to know about the country. How will this story end?
An audience poll suggested that 75 percent were in favor of staying in the euro and less than 19 percent against. The problem, though, is that unless the situation improves substantially in the months to come, the question of whether Greece should use the euro or drachma may not be one that Greeks ever get the chance to answer.