The Reasons Why Greece Should Leave the Eurozone & Return to the Drachma

I argue that Greece should ditch the euro and return to the drachma, the country's currency until it switched over to the euro in early 2002.

The benefits of Greece regaining control of its currency, such as increased competitiveness, would outweigh the costs of leaving the eurozone and defaulting on its debt. A euro exit will be hard but watching the slow disorderly implosion of the Greek economy and society will be much worse.

The austerity measures that are being forced upon the country in exchange for more bailout money from the European financial authorities are setting it up for decades of pain. Greece will have 25-50 years of austerity and poverty, all this to remain in the eurozone where they hopelessly cannot compete. If they can't compete why would they stay in the eurozone? It is all about Greek leadership and its connection to bureaucrats, bankers and others that demand their inclusion into European and World government.

The Greek bailout and debt deal agreed by European Finance Ministers is a farce, a program designed to pay Greece's international creditors and buy time.

The reasoning is simple: the financial sector is trying to keep alive the illusion that Greece isn't bankrupt, cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction in order to get paid. If a default was declared, the resulting payouts would start a chain reaction that would cause widespread worldwide bank failures, making the Lehman collapse look small by comparison.

Greece is indeed broke, and the reason why all the bailout money being thrown into the pot isn't being used to foster competitiveness and help the country get back on its feet is because this bailout isn't actually going to fix Greece: rather, it's all about preserving the dream of a pan European nation state and outside financial interests.

By bailing out Greece and the foreign bank holders of sovereign debt, the pan European political dream remains intact. Current and future actions, therefore, are designed to simply buy more time to preserve the political dream of a future United States of Europe and all the benefits this entails.

The Greek bailout keeps the money flowing into the European financial system. Money is lent from European institutions - ultimately tax payer's money - and then flows into the coffers of European banks. It is a bank bailout on a gigantic scale.

But the good news for the banks doesn't end there. By forcing Greece to speed up its privatisation programme, all sorts of goodies - from airports, ports and motorways to water and sewerage systems - will come up for sale to be snatched up by the financiers of the countries imposing the policies.

The bailouts, the severe public spending cuts, the onslaught on public ownership - all reflect the experience of the developing world in the 1980s and 1990s. The result was two lost decades of development.

Up until this point it was unusual for countries to go backwards in terms of their income levels. But during the 1990s 54 countries went backwards in terms of per capita income and the level of extreme poverty increased by 100 million - not because of war or natural disaster but debt and structural adjustment.

Human welfare was sacrificed to the diktats of the financial system. The increased rates of murder, suicide and HIV in Greece today paint a similar picture.

There are alternatives which Europe could learn from such as what happened in Latin America. The economic policies pushed on Latin America in the early 1980s were an excellent way of helping U.S. banks out of crisis, but an appalling way of resolving Latin America's debt crisis, instead creating two decades of more debt, poverty and inequality.

Of course, this was the precise purpose of these policies - to shift the burden of financial crisis from the financial system and onto developing nations.

The International Monetary Fund (IMF) and World Bank lent money to dozens of countries which would otherwise have defaulted, in order to keep the debt repayments flowing back to the banks of the rich world that had created the crisis by their own reckless strategies.

Then, those countries, which didn't benefit at all from these bailout funds, were told to implement structural adjustment policies which saw industry privatised, money freed from government control and markets ripped open to competition with well-subsidised companies from the U.S. and Europe. Poverty boomed, inequality soared and finance was proclaimed king.

The same logic lies barely concealed behind the Greek bailout agreed by European finance ministers. There is not even a pretence that Greece's people will benefit from these funds.

Make no mistake the austerity measures being forced upon the people of Greece by the IMF and European Central Bank (ECB) are for the benefit of the banks, financial institutions and corporate elite.

The slashing of pensions and the minimum wage, the large reduction in public sector spending and job losses, can only make the depression longer and deeper. Even the Credit Ratings Agencies have recognised the futility of forcing countries into ongoing stagnation.

Greece is stuck in a vicious cycle of insolvency, low competitiveness and ever-deepening depression. Exacerbated by a draconian fiscal austerity, its public debt is heading towards 200 per cent of gross domestic product. To escape, Greece must now begin an orderly default, voluntarily exit the eurozone and return to the drachma.

The exit from the eurozone should be in the long-term interests of working people, not big business or banks. Contrary to what is often asserted, Greece would not collapse if it quit the euro. After all, monetary unions have a limited shelf life, and Europe's is a particularly badly structured one. Exit is the most sensible way for Greece to restore competitiveness and start to recover. The alternative is to continue with austerity packages that do not work and will lead to long-term decline.

The irony of the whole situation is that the austerity measures imposed by the EU-ECB-IMF troika are the main contributing factor to pushing Greece into a deep depression.

If Greece defaults, the country gets immediate relief from the crushing interest payments on its debt, leaving it with a relatively modest primary deficit which excludes the big interest payments Greece is faced with now.

In such a scenario, the pressure for austerity would therefore diminish. This would allow Greece to choose policies that encourage growth, rather than ones that shrink the deficit but retard growth by imposing higher taxes.

By abandoning the euro and adopting a properly valued currency, Greece can restore its international competitiveness. This means greater employment demand from both domestic and foreign sources. A new drachma would boost Greece's competitiveness almost overnight.

The potential negative of default is that Greece will likely lose access, for a while, to international credit markets (although it will be a much safer investment after default than it is now). Another significant problem would be capital losses for core eurozone financial institutions. Overnight, the foreign euro liabilities of Greece's government, banks and businesses would surge. Yet these problems can be overcome. Argentina did so in 2001, when it 'pesified' its dollar debts.

It seems the main issue for Greece is just how long it's going to have to suffer. The harsh austerity measures demanded by the EU and IMF make an economic recovery in this debt-crippled nation a near impossibility over the next two decades.

A country like Greece even with a 70% debt write off, and staying in the euro, will live in poverty for the next 25 to 50 years. A full default and exit from the euro would leave them with a 5 to 10 year depression. At first the latter will be disastrous but then austere normality will occur.

Greece should stop trying to save the euro and work on preserving democracy, regaining its independence, and reforming its own welfare state - all arguably more important than a currency union. Use a new drachma to transform the economy and create true gains to GDP.

If Greece continues to be engaged in what looks like a never-ending game of 'extend and pretend' then the long-term forecast is very bleak indeed.

It doesn't concern powerful elite that the debt of Greece is unpayable, as they are not paying for the bill anyway, you are. Money often flows between global interests, high above the heads of the citizens who most often end up having to pay it back.

When debt cannot be paid we need to stop punishing the people least responsible and start looking at changing the rules governing those who are responsible. This includes the small group of elected and non-elected leaders, composed of ruling Greek families and elites, making decisions for their own personal political and financial gain. The Venizelos elite have shown itself to be without ethics or remorse in many ways already (i.e. the Venizelos government secretly removed 70% of major hospital, utility and university account funds to pay foreign bondholders).

If only Greece had a leader like Rafael Correa of Ecuador, the country would then stand up to the ECB and the IMF because he knows they are nothing more than loan sharks on a huge scale. He would overturn the neoliberal policies currently being implemented in Greece with policies more sensitive to social justice, saving the people from having to pay for a loan that didn't benefit them.

The engagement of Greek people in the issues outlined above is fundamental - not only to help resolve the financial crisis but also in the fight against corruption. Corruption is seriously undermining the integrity of the Greek state and at the highest level can lead to very costly mistakes.

Nothing highlights this more than how Goldman Sachs helped Greece set up a secret loan swap deal in 2001 that helped the country hide its debt levels in order to meet requirements to join the European Union.

The deal is a story of two sinners because of the intentions of the two parties involved - Greece was trying to cover up its high debt levels and Goldman Sachs was trying to make a profit.

And what a profit Goldman Sachs made - on the day the 2001 deal was struck the Greek government already owed the bank about 600 million Euros more than the 2.8 billion Euros it borrowed. By 2005, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion Euros.

Greece is just another example of a poorly governed client that got taken apart by a multinational investment bank. Goldman Sachs is ruthless about ensuring that its interests aren't compromised - it's part of the DNA of that organization.

For the reasons outlined above I urge all Greeks to continue their fight against the policies of the EU-ECB-IMF troika and regain their sovereignty from the whims of an unstable and unethical financial system.

Many people (particularly outsiders) blame all Greece's troubles on its problems with corruption, tax evasion and its oversized state sector. Yet, there is one area of the Greek economy that lies at the heart of the crisis and radically needs reform: military spending.

The fact that Greece, a relatively small and democratic country should spend as much on its military as it does is perplexing. In 2006, as the financial crisis was looming, Greece was the third biggest arms importer after China and India. And over the past 10 years its military budget has stood at an average of 4% of GDP, more than 1000 Euros per person. So why has Greece continued to spend such huge amounts on its army? One major factor is that France and Germany's arms industries have greatly profited from this profligate military spending, leading their governments to put pressure on Greece not to cancel lucrative arms deals.

In the five years up to 2010, Greece purchased more of Germany's arms exports than any other country, buying 15% of its weapons. Over the same period, Greece was the third-largest customer for France's military exports and its top buyer in Europe. Significantly, when the first bailout package was being negotiated in 2010, Greece spent 7.1bn euros on its military, up from 6.24bn euros in 2007. A total of 1bn was spent on French and German weapons, plunging the country even further into debt in the same year that social spending was cut by 1.8bn euros. It has been claimed by some that this was no coincidence, and that the EU bailout was explicitly tied to burgeoning arms deals. In particular, there is alleged to have been concerted pressure from France to buy several stealth frigates. Meanwhile Germany sold 223 howitzers and completed a controversial deal on faulty submarines, leading to an investigation into accusations of bribes being given to Greek officials.

Amid economic stagnation in Europe and the west, military technology remains one of the key areas in which competitive advantage has been maintained over emerging economies. However, while this growth has benefited major arms-exporting countries such as Germany, France and the UK, it has deepened even further the economic divide within Europe. Interestingly, Portugal - another country currently in the news for its economic woes - is Germany's second largest arms buyer after Greece.

If Greece is in need of structural reform, then its oversized military would seem the most logical place to start. In fact, if it had only spent the EU average of 1.7% over the last 20 years, it would have saved a total of 52% of its GDP - meaning instead of being completely bankrupt it would be among the more typical countries struggling with the recession.

And the Greek people, instead of facing austerity measures that have reduced living standards by 30%, might have been able to take a more moderate and sustainable route to reform.