As Germany’s Schauble says Grexit may be the best way forward, is the deal designed to fail?

Wolfgang Schauble suggested that a Grexit would be a better option for Greece (Source: Getty)

Desmond Lachman, resident fellow at the American Enterprise Institute, says Yes

Wolfgang Schauble is certainly right to suggest that Grexit would be in Greece’s own interest. The economic programme that the Troika imposed on it last weekend is very little different in substance from those policies that have failed so spectacularly in the past.

Specifically, it requires major tax increases and pension cuts while Greece is still in a euro straitjacket and in the midst of an economic depression. To compound matters, it is demanding that, should Greece’s economy again falter, further budget tightening is to be adopted. This begs a basic question: why, if past major Greek budget belt-tightening in a euro straitjacket helped get it into its present 1930s-style depression, will the same policies now promote economic growth?

And this question is all the more relevant now that Alexis Tsipras is indicating that he does not believe in the programme, and the Germans are floating the idea that it might be a good time for Greece to take a five-year holiday from the euro.

Shaun Port, chief investment officer at Nutmeg, says No

This deal is not designed to fail. It’s not a deal to inspire either Greece or Germany; it is an eleventh hour one to prevent them both walking away from negotiations. Nor is it the final agreement. There remains the matter of when – not if – debt restructuring or forgiveness will come.

This unresolved element of debt stabilisation will be the main factor holding the Greeks to the task of long-term restructuring. It has been said that the deal makes Greece an economic protectorate of the EU. And that’s the second most important factor. Greece needs help to shore up its tax base, push through asset sales and implement other public sector restructuring.

Above all, it needs disinterested political clout to overrule the family cartels that otherwise control Greece’s ruling elite. Paradoxically, the EU overseers may be better at effecting change than the Greeks left to their own devices outside the euro. It certainly induces more stability.

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