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News Tip: Greek Exit From Eurozone Will Not Solve Country's Problems, Expert Says

Neither a Greek exit from the Euro nor 'austerity' addresses problems, says professor Tim Buthe

A Duke University expert on the EU and the politics of international economic relations examines the consequences of a possible Greek exit from the Eurozone.•    Quotes: "A Greek exit from the Eurozone will not solve any of Greece's problems," says Tim Buthe, an associate professor of political science and public policy at Duke University."Some, like Paul Krugman, have advocated Greece leaving the Euro, because it will allow the Greek government to de-value its currency. This will make Greek exports cheaper and imports into Greece more expensive. So Greek wine, feta cheese and olives, as well as vacations to Greece, will become cheaper for foreigners, and it might stimulate domestic production of previously imported goods and services, if there are actually domestic producers.""But Greece's problem is not a negative trade balance. And Greece's debts will remain denominated in Euros. Paying back any debts will be made more expensive by de-valuing, so the necessary write-off of Greece's debt -- financed by taxpayers elsewhere -- will have to be even larger, making it less likely that Greece will gain access to additional financial assistance.""Without additional financial assistance, Greece will either have to adopt austerity measures even more severe than what the government promised voters they could avoid, or the government may try to spend their way out of the crisis by 'printing money' returning Greece to the high inflation trap that it finally escaped by adopting the Euro.""The roots of this crisis are deep problems in the Greek economy and the Greek state, which require fundamental reforms. The private sector in particular is badly underdeveloped, and tax- and rule-evasion are rampant. A third or more of all economic transactions in Greece take place under the table -- tax free.""The participants in this massive 'informal economy' free-ride on the companies and individuals who actually pay their taxes to finance public investments in roads and other infrastructure and to maintain a functioning state.""Neither a Greek exit from the Euro nor ‘austerity’ addresses these problems, but a Greek exit may actually make reforms harder, since it is unclear that the Greek government recognizes the fundamental problems and has the political will and capacity to go beyond populist statements to address these problems."•    Bio:Tim Buthe, an associate professor of political science and public policy at Duke University, specializes in the EU and the politics of international economic relations. http://polisci.duke.edu/people?Gurl=&Uil=3855&subpage=profile•    For additional comment, contact Buthe at:buthe@duke.edu