How much would a Greek devaluation help?

Arnold Kling is skeptical and while I am on board with the economics of the anti-Euro crew, and I think Greece should leave the Euro, I believe the anti-Euro argument is now being pushed too far.

For instance, contra Paul Krugman, I don't see Euro membership as, in this regard, the main economic difference between the British and the Greeks.  Who has the Elgin marbles and how did they get there?  What longer-run historical and cultural forces does this reflect?

Keep in mind there is nothing stopping Greece from cutting the nominal prices of its exports, right now, thereby altering its real terms of trade.  Those prices just aren't *that* sticky, especially if the business model of the country is falling apart.

You could say that the real problem is sticky wages and not sticky export prices.  Maybe so.  Maybe the Greek exporters are saying "I won't cut my price because if I did buyers would want too much and I couldn't meet the market without hiring more labor and even new labor will work for me only at the old prevailing wage rate and, given that elasticities of demand are not high enough, I can't manage the mix of the new lower product price and the old wage rate."

Yes, some of that is going on.  But it's also the case that the Greek economy is a mess, based on fiscal and sectoral delusions of various kinds.  In fact the Greek economy has been a mess — most but not all years — for a long time before joining the Eurozone.


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