Euro Exit? Interview with Economist Alberto Montero Soler


Gorka Larrabeiti: It turns out Hollande and Merkel as well as the president of the European Central Bank, Mario Draghi, want Greece to remain in the euro. In the pages of the Financial Times, Arvind Subramanian says that Greece’s exit could become the envy of the eurozone, so other countries might wish to follow in its footsteps. You wrote, long ago, that the problem isn’t Greece but the euro. Euros that Greeks are withdrawing from banks. What do you think of what’s happening these days? Explain to us: what would be the positive effects of an exit from the euro?

Alberto Montero Soler: First of all, I have to say that those effects would only manifest themselves in the medium term. To propose an exit from the euro as an immediate solution to the deterioration of living conditions of people would mean to deceive them. We are at a crossroads where peripheral economies can only choose between two evils.

The first, which appears more likely, is a slow but endless adjustment within the eurozone whose economic, productive, and living conditions will be polarized between the core and the periphery. The international division of labor which has been imposed over years is difficult to reverse, and in a context of relocation of production, which is our context, the reindustrialization of the South (perhaps except in the case of Ireland thanks to its fiscal “generosity” for corporate profits, a spurious form of competition like any other) is practically impossible. We are condemned to be service economies oriented to the citizens of a prosperous center and moreover have to compete with new actors entering in international competition (North African economies, for example, as far as tourism is concerned).

The second is an exit from the euro which, despite its likely very severe shock to the economy, that is, its hard and short impact, would allow us to establish the bases of recovery in the medium term. Clearly, this course has much less power to mobilize people socially than the above, since it means that people have to accept that, overnight, their living standard will plummet. However, given social tension being caused by adjustment inside the eurozone, this possibility, in a context of continuous deterioration of people’s living standards, is becoming less and less remote. Deep down, we know what awaits us: outside perhaps the sun may shine again. And what recent experiences of debt default and devaluation teach us is that the sun will shine again much sooner than later.

For that, it is necessary to consider the fact that the principal effect of an exit from the euro would be a very marked and significant devaluation, initially, of the new national currency. Thus, for example, in the case of Greece, Nomura, an investment bank, has calculated that, in a horizon of five years, the new Greek currency should depreciate over 57% from the current euro/$ parity (in the case of Spain that depreciation would be over 35%).

That has a tremendous impact on the economy: GDP collapse; higher unemployment; a banking crisis that would bankrupt much of the financial system; and higher inflation as a result of higher import prices.

Without getting into another kind of considerations related to the fact that the euro exit would necessarily be accompanied by a suspension of orderly payments and a renegotiation of a majority of debts still in force, I can say the stage will open to unsuspected possibilities in a setting that, if we pay attention to the lessons of the recent history of crises triggered by debt payment suspensions and devaluations, will be much less catastrophic than conventional economists used to predict before those crises. As J.K. Galbraith says, “The only function of economic forecasting is to make astrology look respectable.”

There are different orders of possibilities in that new setting.

First, the possibilities related to the government’s recovery of economic policy tools and thus also of economic sovereignty till now surrendered to supranational bodies whose interests do not necessarily coincide with those of citizens or rather, as this crisis brutally demonstrates, may be perfectly opposed to them.

Those of us who believe in the necessity of overcoming capitalism — or, at least for now, overcoming this ruthless version of it — would have to be, I think, clear on this one point: inside the eurozone this emancipatory project is impossible and, therefore, either this project would be built outside it or else it would be dismissed as unrealizable. And, even though there is certainly no guarantee that such a project would be built outside it, not building it in that case would be the result of a sovereign decision, not of a veiled imposition.

Second, the possibilities of economic recovery, which, at first, would necessarily come by way of exports stimulated by the devaluation of the new currency, exports which can be promoted today only by the deflation of workers’ wages. This is exactly the main advantage that conventional economists attribute to a country’s exit from the euro.

Nevertheless, that’s not the only advantage, for, in addition, devaluation, by making imports expensive, would offer new possibilities outside the parameters of conventional economic logic. Thus, the shock would allow us to rebuild a much more domestically-centered economic network, less dependent on fluctuating international trade and much more focused on the internal economy. That way, it would be possible to stimulate, almost naturally, trade with neighbors, forms of production of social, community-oriented economy, and production for citizen welfare via social service provision, i.e. to strengthen a structure of production of goods and services centered on meeting the needs of citizens, paying greater respect to the environment.

In this regard, Argentina’s experience during the crisis again shows us interesting things such as the emergence of forms of production, property, and trade beyond the capitalist logic, some of which still survive, for instance the case of factories occupied and brought under workers’ control.

And, finally, the bankruptcy of much of the banking system also constitutes an opportunity to rebuild it on a social basis of public banks oriented to financing productive enterprises and people’s access to balanced consumption, unlike the financialized patterns of contemporary banking performance.

I believe that these, among others, are some of the opportunities that would open up for a country facing the prospect of its exit from the euro. A prospect that is every day becoming less remote and more present, especially for major economic powers — suffice it to see that most big investment banks of the world have had their own reports written up about impacts that a breakup of the eurozone would have on their businesses. And not just them — German corporations, for example, are already getting ready for that.

Alberto Montero Soler is Professor of Applied Economics, University of Málaga, and President of the CEPS Foundation.  Read his blog La Otra Economía at The above is a translated excerpt from “Los vampiros de Europa: Entrevista al economista Alberto Montero Soler” (Rebelión, 1 June 2012). Translation by Yoshie Furuhashi (@yoshiefuruhashi | yoshie.furuhashi [at]