|Lessons for Asean in Greece‘s crisis|
|By Wichit Chaitrong
Trairong Suwankiri, an economist turned politician, said last week that he expects the Greece government will default on its debt and eventually desert the euro currency.
His comment came amid a mixed bag of news.
The good news was the pro-bailout party won the election in Greece and European leaders agreed to shift to a growth policy and not only prescribe austerity for those in trouble.
The bad news was 15 global banks saw their credit rating downgraded by Moody’s Investors Service, an international rating agency.Trairong is among many outsiders who believe that currency integration is not good for a less competitive country since that country cannot devalue the currency.
The unit dived from about 25 per US dollar to over 40.
The weakening of the baht rescued the economy, as Thailand’s exports were cheaper than its competitors’ products in the global market.
However, Greece cannot devalue the euro to support its recovery.
Trairong said he just came back from Europe.
He had gone on a quest to find out what going on there.
One observation was that hotels in Greece charged him the same as hotels in Germany, even though the service in Greece was much poorer.
Economists had backed a common currency because they assumed that other less competitive members would try to emulate Germany by reforming their economy and striving to increase their labour productivity, he said.
But such an assumption was misplaced. Greece and other troubled economies increased social welfare by expanding government jobs or offering generous benefits to workers.
And most of the public welfare was financed by debts.
While wage costs rose, productivity dropped. Many countries in Europe have lost their edge to countries in Asia.
Many pundits, particularly in Southeast Asia, also feel that Asean, which is moving towards a single market in a few years, does not need to have a common currency, citing the chaos in the eurozone.
“Additional benefits from currency integration are far outweighed by the downside risks,” he said.
However, those who support the common currency believe that Greece can stay in the European bloc by reforming its economy.
Mark Mobious, executive chairman of Templeton Emerging Market Group, said that abandoning the currency would not make debts disappear. However, price cuts would make Greece’s goods and services cheaper.
Economists in Europe have made many proposals to overcome the quandary.
One is to create some kind of EU common fiscal government responsible for allocating financial resources to where they were needed.
The other is for the European Central Bank to have the real power of a central bank, which is the lender of last resort and can print money.
- Top economist says Greece should leave eurozone (abc.net.au)