Sounds good on paper

I’ve read through the details of the third bailout-programme for Greece. While it looks quite reasonable on paper, I doubt that it will work.

Passing laws and reforms is one thing, and especially the administration reform under the supervision of the EU is something Greece really needs. Nevertheless, there is a difference between what a parliament decides and what bureaucrats make of it. Unfortunately, I lack the confidence that the Greek administration is up to the task. In the end it is – damn rightly so – Greeks who have to collect taxes, write correct invoices and so on.

There is (luckily) no sensible way to force a Greek bureaucrat, to implement the reforms correctly. The only way the reforms will work, is when they have the support of the people. And a people who voted ‘No’ just a week ago, is maybe not quite the most supportive one can imagine.

As long as Mr Tsipras sells reforms as concessions towards the institutions and not as something Greece badly needs, and as long as the Greeks do not forcefully object him, I see little hope for the new programme.

This next bailout will only prolong the suffering of Greece and the uncertainty in the rest of the Eurozone. To protect Greece, Mr Tsipras should opt for the Grexit, even though it will be hard. But it is better to go through the rough but quick external devaluation than to go through at least three more years of slow internal devaluation.

Likewise, the rest of the Monetary Union should realise that Greece is not and was never fit for the common currency. There is no shame in admitting past mistakes and correcting them. Greece should be offered a way out of the Euro without leaving the EU, together with help to save its banking system and to cushion the blow of the recession after leaving.

Greece leaving the Euro is both the most sensible solution for Greece itself and the only way for the rest of the Monetary Union to ensure that everybody takes its rules seriously. Everybody will understand the Grexit as the overdue correction of a fifteen year old mistake. Yes, it violates the No-Exit principle, but given that we already violated both the No-Default and No-Bailout principles I do not think that this would be any more of a problem than the ones we are currently dealing with. In the end both Greece and the Monetary Union will be better off – granted, fifteen, ten and five years ago, there were *way* better solutions, but given the circumstances this is the best we can do. Better get it over with before the situation becomes worse.

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I write about economics and politics. I take Ordnungspolitik seriously. While not blogging, I study monetary unions for my doctorate.