Wednesday, 8 July 2015
Emigration could be the only solution for Greece.
Both this Bruegel article and this Pieria article claim that because responsiveness of Greek exports to a cut in Greek wages is low, that therefor Grexit and re-introducing the Drachma won’t solve Greece’s problems. The problem is illustrated in the chart below (taken from the Bruegel article).
The first problem with that argument is that if traditional devaluation won't work, then internal devaluation (the remedy being tried at the moment) won't work either.
But in fact devaluation (traditional or internal) WOULD solve the problem: it would lead to a fall in Greek living standards such that Greeks would be encouraged to quit the country and find jobs elsewhere in the World.
Of course that’s not an ideal solution, but it’s actually been part of the solution to Greek unemployment for a century in that there’s a large Greek diaspora in the US and elsewhere. Emigration has been a significant part of the solution to high unemployment in Ireland at various stages in its history. And unlike the Greeks, the Irish have done that without threatening to bring the European Union or Eurozone down with them. You’ve got to admire them.
Economists have long recognised that devaluation does not necessarily work. That is, the best use for a particular bit of land may be to turn it into a sparsely populated area that does just agriculture.
The latter is a bit of an exaggeration of course: that is, Athens isn't going to disappear in the next ten years. But significant emigration from Greece could be the least bad option.