The chance that Greece will have to withdraw from the eurozone is now very real, economists agree. And many now say Europe can deal with such an outcome. But Harvard economist Kenneth Rogoff, former chief economist of the International Monetary Fund, says think again.
Europe has made some progress since the debt crisis first exploded two years ago, but not enough to easily handle a Greek meltdown, he tells The New York Times.
If Greece falls, the next countries likely to be tested by bond market vigilantes and frightened depositors are Spain and Italy.
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Those two nations would undoubtedly need loans. But it’s not clear that other European nations and the European Central Bank would be in a position to provide them, Rogoff says. There’s no clear political agreement to do so.
More broadly, the eurozone hasn’t come up with a solid long-term plan to keep its single currency intact, Rogoff says.
“These are difficult political decisions that they just aren’t ready for,” he says. “They should be. They’ve had two years to think about it. But they’re not ready.”
David Roche, president of Independent Strategy research firm, concurs.
“Capital flight from those countries [Spain, Italy, Ireland, and Portugal] would have to be ring-fenced by unlimited amounts of government bond buying by the European Central Bank and also with guarantees for depositors so they wouldn’t take their money out,” he tells MSNBC.
“Are we ready? No.”
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