Economist Michael Arghyrou has been writing extensively on the Greek debt crisis from his post at Cardiff University in Britain. Today he headed to Greece and, in an interview from Athens, he shared his perspective of what things look like on the ground, how a coalition government could help create stability and what a Greek exit from the euro zone would mean. What follows is a transcript of our discussion, edited for length and content:
Sarah Kliff: What’s the feeling on the ground in Athens right now?
Michael Arghyrou: What feels most likely right now is we’re going to see elections, and that will happen in the next 20 to 30 days. From those elections, I’d expect there will be no single party government, so we’ll have a coalition government. It’s still not very clear what will happen if the prime minister loses the vote of confidence tomorrow, whether his party will remain united. There are some who seem willing to form a coalition with the center right.
SK: Let’s say we do get a new coalition government. What does that mean for the bailout deal that the European Union has put on the table?
MA: They will have to agree to whatever is on the table. I am 100 percent sure, no matter what the Greek government looks like, they will go through what was agreed to last week. There’s no doubt going to be a change of personnel, but that won’t change the agreement.
SK: Why do you feel so certain about that?
MA: France and Germany have made it absolutely clear that they’re not going to be pulled around. So Greece will operate under a much more straightforward framework. No uncertainties, no ifs, ands or buts. I think, after all this instability, you’ll see a much more determined implementation of the necessary reforms. As long as we reach that stage of an election, and the markets haven’t panicked too much, I think that’s what you’ll see.
SK: Does a coalition government seem like the best path forward right now?
MA: It will be somewhat shaky but, given the current menu of options, it provides the highest possible amount of stability. You wouldn’t normally suggest elections during a period of crisis but, right now, it looks like the best option.
SK: A lot of the concern, with the referendum, was that Greece would exit the euro and the euro zone. Could you explain what would happen then?
MA: From an economics point of view, some might argue that there’s a reason to exit the euro zone. The argument goes that Greece will have its own currency, and have a competitive advantage, so it will not need to go through the drastic austerity measures [that are part of the conditions for the European Union bailout].
SK: My understanding is you don’t agree with that argument though. Explain why not.
MA: Exiting the euro zone removes every reference point of stability that Greece currently has. If Greece is not part of the euro zone, it cannot rely on any of those institutions. If Greece goes from the euro zone you could see political instability, economic instability, high inflation and rising unemployment. I don’t imagine that my fellow Greeks would like to take this risk. The best thing to do is stick to the agreement [on a European Union bailout]. It’s difficult, but the best prospect for Greece’s future. Without it, it’s the end of a safety net