New York Times Editorial Board: “For Europe’s Sake, Keep Greece in the Eurozone”

The New York Times editorial board issued a strong statement to Greece’s European partners in an editorial calling for Greece to remain in the Eurozone— for Europe’s sake. The complete editorial is here:

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The resounding victory for the “no” vote in Greece’s referendum has left European leaders like Chancellor Angela Merkel of Germany with a stark and clear choice. Only they have the power to decide what happens next — whether to shove Greece out of the eurozone or offer some path forward for the Greek economy, starting by writing down its huge and unpayable debts.

Greece has suffered and will continue to suffer: its unemployment rate is over 25 percent; its gross domestic product has fallen by a quarter since 2008. What the past several years have shown is that suffering and austerity did nothing to help Greece or its creditors. And no more moralizing and punishment at this point will change that reality.

Ms. Merkel, the most powerful political leader in Europe, now has to decide whether she is willing to risk the stability of the European Union, consign Greece to economic depression and threaten global financial markets, or do the rational thing at this critical moment.

Leaders of the eurozone will meet Tuesday to discuss their options and consider a new proposal from Prime Minister Alexis Tsipras of Greece. They will have to act quickly because Greek banks are running out of cash after the government shut them down and imposed capital controls a week ago.

From an economic perspective, it is clear what Europe’s leaders should do. They need to restructure Greece’s total debt of 317 billion euros — about 177 percent of its G.D.P. — and keep the country, a member of the European Union and NATO, in the eurozone.

Letting the country leave the euro will, of course, hurt Greece by making its banks insolvent and bringing most economic activity to a halt while the government issues new scrip, most likely followed by a return to a greatly devalued drachma. Nobody really knows how bad things will get in that scenario. That’s why Mr. Tsipras and the leaders of other Greek political parties said on Monday that they wanted the country to stay in the eurozone.

A Greek exit would also do untold damage to the credibility of the euro and the European project by making clear that any country’s membership in the eurozone could be revoked. That might not be an immediate concern for other economically weaker countries like Italy, Portugal and Spain, given that yields on their government bonds increased only modestly after the Greek vote. But the specter of more exits from the eurozone would undoubtedly make it hard for European leaders to respond to future crises.

Those against debt relief have argued that saving Greece would merely reward a government that has failed to reform its inefficient economy. But that is a self-serving misreading of what happened in the crisis. It was European leaders and the International Monetary Fund that made the biggest error in 2012 when they only partially restructured Greece’s debts, a lot of which were owed to banks in Germany and the rest of Europe.

They compounded the problem by demanding that the country cut spending and raise taxes. That depressed a weak economy and drove up unemployment, making growth and increased revenues impossible. In their most recent proposal, Greece’s creditors sought even more cuts to already modest government pensions, which would lead to further economic contraction.

Yes, Greek officials past and present are responsible for many of their country’s problems. But European leaders have made the crisis worse by their mismanagement. Now it’s incumbent on them to end the threat to the eurozone by saving a small, paralyzed country.

Read the opinion piece on the New York Times website here.