The New York Times showed desperate liberal Euro-philia -- an embrace of collective economic action at the expense of national sovereignty -- on the front of Tuesday’s Business section, as reporter Landon Thomas Jr., writing from London, pondered a frightening (and extremely hypothetical) martial-law scenario in Greece if the euro currency were to be abandoned by that country, a member of the European Union: “Pondering a Dire Day: Leaving the Euro.” (Greece joined the EU's single currency in 2001.)
It would be Europe’s worst nightmare: after weeks of rumors, the Greek prime minister announces late on a Saturday night that the country will abandon the euro currency and return to the drachma.
Instead of business as usual on Monday morning, lines of angry Greeks form at the shuttered doors of the country’s banks, trying to get at their frozen deposits. The drachma’s value plummets more than 60 percent against the euro, and prices soar at the few shops willing to open.
Soon, the country’s international credit lines are cut after Greece, as part of the prime minister’s move, defaults on its debt.
As the country descends into chaos, the military seizes control of the government.
This scary chain of events might never come to pass. But the danger that Greece or some other deeply damaged country in the euro zone could leave the single-currency union can no longer be ruled out. And it was largely this prospect that drove leaders last week to agree to adopt strict fiscal rules that they hope will wrap the 17 European Union nations that use the euro into an even tighter embrace.
Thomas eventually calmed down a little, and provided some dissenting voices, which he didn’t take as seriously.
While their numbers remain small, some Greek economists say that this is the only way to address the country’s persistent inability to balance its trade. Theodore Mariolis, an economist at Panteion University in Athens, argues that a devaluation of 50 percent or more could close Greece’s trade gap without sending inflation soaring -- an outcome that many economists might regard as too good to be true.
But whether that provides a long-run solution for a country that has failed to improve its competitiveness is questionable. And the biggest problem for Greece if it returns to the drachma, says Hal S. Scott, an expert on international finance at Harvard Law School, would be persuading Greeks to believe in and hold an ever weakening drachma when a much stronger euro would be so readily available.