Thursday, March 1, 2012

Would Greece Suffer From Food Shortages If They Left The Euro?

In previous posts, I have suggested that going back to the Drachma might be the only solution to the Greek debt problem. A devalued Drachma would make Greek exports more competitive and increase revenue from tourists taking advantage of low prices. Numerous other commentators have published posts along a similar vein.

However, there is a monster problem with Greece leaving the Euro, the country is not self sufficient in food production. The cost of imported food might double if the Drachma experienced a 50% devaluation. As reported by Megan Greene,
Greece has few export industries it could rely on to grow its way out of the crisis even if it devalued its currency. There is tourism, but any profits from shipping are kept out of the country and green energy is still but a mere pipe dream as an export industry for Greece. Given that Greece is not self-sustaining in agriculture,  a devaluation accompanied by hyperinflation would result in a starving population, and that the resulting civil unrest would destabilize the entire Balkan region
Thus, while a return to a devalued Drachma would be good for those whose make their livelihood from tourism and related services, the rest of the country would be plunged into even more dire straits. The high cost of imports, including food and energy, would push a significant portion of the population into poverty. 

The current efforts of the Troika are primarily based on avoiding short term damage to the European financial system from fallout that will occur when unsustainable Greek deficits and debt lead to a default on their sovereign debt. However, the austerity measures being forced upon the Greeks are destroying the economy. No real solutions that might potentially solve the problems caused by a government that spends more than it collects in revenue are even on table at this point. Given the downward spiral of the Greek economy, deficits will continue to mount. Eventually, the Greeks will either decide for themselves to leave the Euro zone or they will be forced out by the member countries that are already weary of funding Greek deficit spending. Regardless, of whether Greece voluntarily leaves the Euro zone or if they are forced out, the outcome will likely be years of grinding poverty for the Greek population.

Related Posts
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Is The Greek Economy In A Death Spiral?

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