Time to Let Greece Go?

| Fri Jun. 22, 2012 10:52 AM EDT

Ezra Klein surveys the current attitudes of Germany and other northern European countries and asks, "Is Europe trying to kick Greece out?"

One plausible story I’ve begun to hear is that an increasing number in the euro zone actually want to drive Greece out. The idea, basically, is that Greece is such an unsalvageable basket case, and its economy is so much weaker than anyone else’s, and its governments have been so much more dishonest and difficult to deal with, that solving Greece’s problems would mean rewarding irresponsibility while not solving them would mean an endless cycle of crisis. At some point, it’s better just to cut them off and cauterize the wound.

The funny thing about this is that everyone might be better off if Germany and Greece negotiated a (relatively) amicable agreement to do this. Germany would be better off because they don't want to prop up Greece forever. Greece would be better off because re-adopting the drachma and devaluing it would solve their underlying problems of inflation and capital inflow and give them a chance at a genuine recovery. And the eurozone would be better off because it would be rid of the country least suited to be a member.

Obviously there's still the risk of contagion in this scenario: if Greece can negotiate an exit, why not Spain and Italy and Portugal too? But that's a looming danger in any case, and simply acknowledging what's common knowledge — that Greece never should have been part of the eurozone in the first place — might do everyone a world of good. A friendly deal that made Grexit as smooth as possible; kept Greece in the EU; and included some IMF support to cushion the blow might actually be the least bad bet for everyone.