Greece Stuck in “Vicious Cycle of Insolvency”

Greece should default, abandon the euro currency, and return to the drachma, according to NYU economist Nouriel Roubini.

“Greece is stuck in a vicious cycle of insolvency, low competitiveness and ever-deepening depression,” Roubini wrote in a Financial Times op-ed.  In the article, Roubini presented his case for a Greek exit from the euro zone and an orderly default.

Roubini is the latest in a growing series of economists and investors calling for a Greek default.  Yesterday and today Greece is holding a conference call with officials of the troika – the EU, ECB, and IMF – charged with determining appropriate bailout measures for the debt-strapped nation.  However, while policymakers continue to attempt to save Greece, financial markets are already pricing in the near certainty of a Greek default.

The NYU economist went on to say that “Like a broken marriage that requires a break-up, it is better to have rules that make separation less costly to both sides.  Breaking up and divorcing is painful and costly, even when such rules exist.  Make no mistake: an orderly euro exit will be hard.  But watching the slow disorderly implosion of the Greek economy and society will be much worse.”

By exiting the euro zone as quickly as possible, “via nominal and real depreciation, the exit path will restore growth right away, avoiding a decade-long depressionary deflation,” Roubini added.