Some economists have warned that the economic consequences for Europe could be dire if Greece leaves the euro. But Arianna Huffington, president and editor-in-chief of The AOL Huffington Post Media Group, said on Saturday that Greece would be better off without the euro and the forced austerity that it entails.
Huffington, who grew up in Greece, said on Saturday at the Economist‘s World in 2012 conference that if Greece stays on the euro, it would be forced by European leaders to continue to slash its budget, leading to persistent high youth unemployment and social unrest. Currently, the youth unemployment rate in Greece is more than 40 percent, and there has been considerable unrest from strikes and protests. She emphasized that austerity measures do not help the economy grow or even help the budget.
“I think that the right leadership without the euro will give [Greece] the flexibility that it needs to actually grow the economy and not simply play defense continuing with these austerity measures, which have actually made it infinitely harder to even balance the budget because the revenue being generated has been so reduced,” Huffington said.
“There are no really good solutions, but my concern is that, if Greece stays in the eurozone, the priority is going to be about austerity measures,” she said.
Many are concerned that if Greece leaves the euro, the eurozone would break up and plunge into a deep recession because borrowing costs for other eurozone countries would become unsustainable. In that scenario, those countries would be forced to default and leave the euro, and large banks holding sovereign debt would fail.
The crisis already has spread from Greece to the rest of Europe. Borrowing costs for Italy, Europe’s third largest economy, and Spain have become unsustainable.
European leaders have forced Greece to cut its budget in exchange for loans to prevent a sudden default, but Greece’s budget deficit has grown 15 percent in response to austerity measures, since tax revenue has fallen.
European leaders decided in late October to force banks to accept a 50 percent trim on Greek sovereign debt, but some economists say that 50 percent is not enough, as Greece’s economy shrinks more than five percent per year.
Greece could find it attractive to leave the euro both to pursue its own policies and to make its exports more competitive in a cheaper currency, according to some economists. But with such a move, the Greek banking system could collapse and the Greek government could be forced to run a balanced budget and pursue austerity measures out of necessity, since international investors may avoid lending to Greece after an exit from the euro.
European leaders forced Greek Prime Minister George Papandreou to step down in November after he said he would hold a referendum for the Greek people to accept or reject Europe’s latest policy prescriptions for Greece. The new Greek prime minister, Lucas Papademos, has described staying in the eurozone as Greece’s “only choice.”
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