The Argentina Solution For Greece

[EdRooney]

Greece is now in a situation similar to Argentina in the late 1990s: it has lost a third of its GDP, with 27% unemployment, mass poverty and families living on the street eating out of dumpsters.

And similar to Argentina, Greece's financial depression comes after years of IMF implemented austerity, privatisations and spending cuts, and a situation where it does not have control over its own currency.

Many establishment economists (such as Paul Krugman and Mark Weisbrot) are saying that Greece should use Argentina as a model for escaping from its financial crisis. After Argentina broke its currency peg and told the IMF to go screw, it turned its economy completely around: from 2002 to 2012 it grew its GDP by an average of 6.8%, cut its poverty rate by 60% and cut its unemployment rate by a whopping 70%. (And all this in spite of the bumbling ineptitude of two Kirchners!)

These economists say Greece should do what Argentina did: default on its onerous debt, leave the Euro and fully reject IMF/EU austerity.


For an opposing view, other pundits say that Greece is not comparable to Argentina and the Argentine solution would not apply. These economists notably include Yannis Varoufakis, the current Finance Minister of Greece, who argues that:

1. Greece going back to printing Drachmas would be far more difficult than Argentina merely cutting its dollar peg, because Argentina had pesos in circulation but there are no Drachmas in circulation in Greece​

2. Argentina had economically healthy trading partners (Brazil, China), but Greece only has Europe which is also in crisis, so it cannot export its way out​

3. Having parallel currencies would be devastating with an enormous human cost.​

So what do you think? Is the Argentina Solution appropriate for Greece or are there better options for getting the Greeks out of their great depression?



PS I assume this thread will revert to the usual "Argentina sucks and is an example for no one" vs. "Nestor Kirchner is the Messiah" meme, but I was hoping against all odds that we might be able to have a sensible fact based conversation... just this once?

 

[Rich One]

The Greek proposals DO Not propose a 65 % discount on the debt, as a mater of fact no discount requested?? Why not use the Kirchener model of 65% discount...?

 

[Chet]

The euro was a mistake to start with, all fixes short of getting out of it simply prolongs the pain.

 

[sleslie23]

My knowledge of geography is much better than my knowledge of economics, but it seems to me the major difference is that Greece can't plant millions of hectares of soybeans to help drag it out of economic abyss.

 

[Matt84]

Notice how differently the Greeks handle the crisis than say the Portuguese.
You don't see Reactionary elements in Portugal in the same way that you don't see qualified Greeks finding work in Africa or Northern Europe.

Do you guys think that even at this point with such a weak Euro countries like Greece or Spain are still useful to the Germans to keep their currency low and sell cars at internationally competitive prices?

I have one solution for Greece: Replace the Euro with the Turkish Lira (It's already in circulation in the area )

 

[EdRooney]

Sleslie I think you may be on the right track, but the data clearly shows that commodity exports only represented 12% of Argentina's GDP growth from 2002-2012. Rather it was the development of internal markets that got Argentina out of crisis, and is what is lacking in Greece, geography notwithstanding.

 

[sesamosinsal]

My knowledge of geography is much better than my knowledge of economics...

We all have our strengths.

 

[sleslie23]

Sleslie I think you may be on the right track, but the data clearly shows that commodity exports only represented 12% of Argentina's GDP growth from 2002-2012. Rather it was the development of internal markets that got Argentina out of crisis, and is what is lacking in Greece, geography notwithstanding.

Fair enough, but again referring to the geography, the population of Greece is 11.03 million vs Argentina's 41.55. Can a population of of 11 million create/support an internal market large enough to make a difference? (A serious question, I have no clue.)

Also, isn't part of Argentina's expanding internal market due to import restrictions, which has lead to various problems, some real and some exaggerated?

EDIT: Also, isn't 12% of a GDP resulting from one specific commodity kind of a big deal?

 

[Johnny]

Nice post Ed. As for comparisons, you didn't mention the Corralito. If Greece were to exit the Euro they would have their own version of the Corralito. Brutal it would be. They are stuck between the proverbial rock and a hard place.

 

[camberiu]

So what do you think? Is the Argentina Solution appropriate for Greece or are there better options for getting the Greeks out of their great depression?

Default is an appropriate solution if you put the house in order afterwards. But to default and simply go back to the old bad habits, that is just being politically disingenuous. And that is what Argentina did.