Truths about the euro
Currency crises plagued Greece in 1995-96, as international funds speculated against the drachma at the expense of the country’s foreign exchange reserve, which then amounted to $20 billion. The Bank of Greece had jacked short-term interest rates up to 1,000 percent to deter profiteers, and draconian restrictions were slapped on the movement of capital. Currencies reflect the economy and the drachma was weak because the state-reliant Greek economy had reached rock bottom in international competitiveness, with a rising current account deficit, fiscal shortfalls and ballooning public debt. The current account deficit has since expanded even further, to 7.8 percent in 2005 (double the level of a decade ago) despite generous input from shipping and tourism, probably because globalization caused a steep drop in local competitiveness. If Greece had not joined EMU in 2000 and adopted the euro, the economy would still be staggering through drachma devaluations and entrenched inflation that would crush wages. A strong euro boosted the Greek economy and easily funded the imports that maintain a high standard of living, guarantee payment of the public debt – with much lower interest rates – and prevent the economy from being crushed by relentless international competition. Thus it is unfair that 55 percent of Greeks, in the latest Eurobarometer poll, believe Greece was disadvantaged by adopting the euro. Of course, some 88 percent believe the euro is to blame for high prices. Yet research has shown that euro-based inflation amounts to less than half of one percent of our current 3.5 percent inflation rate. The real problem is Greece’s lack of preparation for joining EMU and governmental failure to liberate markets in order to benefit from competition.
