How the IMF Failed Greece

NEW DELHI – Democracy is about real choices. But, throughout their country’s crisis, the Greek people have been deprived of them. For this, the Europe Union and especially the International Monetary Fund bear considerable responsibility.

Greece was offered two stark choices: Leave the eurozone without financing, or remain and receive support at the price of further austerity. But Greece should have been offered a third option: Leave the euro, but with generous financing.

This option should have been put on the table, recognizing that Greece has broader political reasons for staying within the eurozone. Although exiting the monetary union would have yielded considerable benefits, “Grexit” would have entailed sizeable costs as well.

The benefits would have included a massive devaluation, which would have restored some dynamism to what was once a fast-growing economy. But the costs were terrifying. The government would have had to default, the banks would have been ruined, and both would have struggled for years to regain the trust of financial markets. As a result, interest rates would have remained high for a long time to come, impeding efforts to restore growth. Is it any wonder that the Greek government shrank from this horror and chose the “safe” option of austerity?