A Greek euro tragedy

Internal devaluation

This week saw a two day general strike in Greece ahead of a vote in parliament on whether to implement £25 billion of spending cuts demanded by the European Commission as the price of another bailout for its busted economy. Protests were held which turned into riots. Parliament still voted for the cuts.

It is possible to feel sorry for the Greeks. Their costs and wages are hideously uncompetitive. Until 2001, when they joined the euro, the Greeks could have devalued their currency, but instead inflated it, in other words, so that the costs and wages came down in real terms without the political battle of making cuts in nominal terms.

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