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British economists urge Greece to default on its debts, abandon euro
Howard Richman, 6/1/2010

On April 29, my father predicted on this blog that the Southern European countries would be forced to leave the euro zone. He wrote:

Unfortunately, Greece, Portugal, and Spain cannot print euros or levy import duties. It seems likely that Greece, Portugal, and Spain will have to retire from the EU – at least from the euro zone until they get control of their foreign trade and their domestic budgets. One other way out would be for Germany to invest more and import more from Greece, Portugal, and Spain. If it invests enough and soon enough and imports enough, the evil decree can be avoided.

Nouriel Roubini was the next to make this claim. See my blog posting from May 12.

On May 29, in the American Thinker (The Euro: This Marriage Can't Be Saved), we repeated my father's prediction that Southern European governments would give up the euro, based upon their self-interest.

On May 30, Times On Line reported that British economists at the Centre for Economics and Business Research (CEBR) recommended that Greece give up the euro, based upon its own interest. Here's a selection from the report:

Speaking from Athens yesterday, Doug McWilliams, chief executive of the CEBR, said: “Leaving the euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in euros, this would raise the debt from its current level of 120% of GDP to 140% overnight. “

So part of the package of leaving the euro must be to convert the debt into the new domestic currency unilaterally.”

McWilliams called the move “virtually inevitable” and said other members may follow.

We are losing our edge. It used to be that we were several years ahead of the rest of the economics profession; now we are only weeks ahead!

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Comment by CE, 6/28/2010:

Michael Pettis told me in 2003 that the euro would not survive the first serious global liquidity contraction.  On his blog he says that Greece will default, and will get debt forgiveness, but not until European banks have had five or six years to rebuild their capital base.




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