There was a article in the UK Guardian yesterday (May 21, 2013) – No, Argentina is not a ‘cautionary tale’ for the eurozone. The basic tenet of the article, written by a Greek journalist is that there is no applicable analogy that can be drawn between the experience of Argentina during its crisis in 2001-2002 and the current crisis in Greece. The author rejects any attempts to draw a comparison because Greece would have to introduce a new currency and this would mean no-one would agree to hold it and this would prevent Greece from purchasing essential imports. The author claims that all Argentina had to do was break a pegged arrangement. My view expressed in this blog is that while there are technical differences in the way the monetary system would change in Greece if it abandoned the Euro and what happened in Argentina, the similarities between the two cases are greater. There is an applicable analogy and it scares those who want to hang onto the Euro at all costs.

The fiscal austerity imposed on the southern European nations such as Greece and Spain has been imposed by the Troika with two justifications. First, that the private sectors in these nations would increase spending as the public sector cut spending because they would no longer fear the future tax hikes associates with rising deficits (the Ricardian argument). The evidence is clear – they haven’t. The second argument was that massive cost cutting (the so-called internal devaluation) would improve the competitiveness of the peripheral nations, close the gap with Germany and instigate an export bonanza. It was all about re-balancing we were told. The evidence for that argument is clear – it was a lie. The massive impoverishment of these nations and the millions of jobs that have been lost and the destruction of a future for around 60 per cent of their youth (who want to work) has all been for nothing much. As was obvious when they started.