Courtesy of Mish.
There’s an amusing pair of headlines back-to-back today on what a Greek exit from the Eurozone might mean.
One view is catastrophic, the others is along the lines of no problem. Let’s start with the catastrophe.
Economic historian Barry Eichengreen says Greek Euro Exit Would be ‘Lehman Brothers Squared.
A decision by a new Greek government to leave the eurozone would set off devastating turmoil in financial markets even worse than the collapse of Lehman Brothers in 2008, a leading international economist warned Saturday.
A Greek exit would likely spark runs on Greek banks and the country’s stock market and end with the imposition of severe capital controls, said , an economic historian at the University of California at Berkeley. He spoke as part of a panel discussion on the euro crisis at the American Economic Association’s annual meeting.
The exit would also spill into other countries as investors speculate about which might be next to leave the currency union, he said.
“In the short run, it would be Lehman Brothers squared,” Eichengreen warned.
Martin Feldstein [professor of economics at Harvard University], a longtime critic of the euro project, said all the attempts to return Europe to healthy growth have failed.
“I think there may be no way to end to euro crisis,” Feldstein said.
The options being discussed to stem the crisis, including launch of full scale quantitative easing by the European Central Bank, “are in my judgment not likely to be any more successful,” Feldstein said.
The best way to ensure the euro’s survival would be for each individual eurozone member state to enact its own tax policies to spur demand, including cutting the value-added tax for the next five years to increase consumer spending, Feldstein said.
He predicted that European politicians would “swallow hard once again” and make the compromises necessary to keep Greece in the currency union….
