Greece needs to return to the drachma return and implement reforms

17/2/2015

Sir, Wolfgang Münchau cannot be more wrong in his argument (“Athens must stand firm against the eurozone’s failed policies”, February 16) that the Greek government should reject the current troika requirement of a primary budget surplus of 3 per cent of gross domestic product because the target is insane for a country like Greece with mass unemployment.

To see why, one needs to remember what happened to Greece’s neighbour 15 years ago. Turkey had signed a standby with the IMF in 1999 with a comparable GDP to that of today’s Greece at the time and with a much lower GDP per capita. The prescription was a currency peg along with fiscal reforms. The result, however, was a devastating banking and economic crisis within two years. The peg shattered and the Turkish lira lost more than half of its value overnight. The banking system fell apart and the unemployment reached as high as 21 per cent. A new two-year $11bn standby was agreed in 2001 demanding a primary surplus target of 6.5 per cent of GDP a year.

The new government did not stand up to the IMF and stuck to the programme. The people did not take it to the streets. The economy quickly took advantage of the depreciating currency to boost its exports mainly to the EU and used that breathing space to implement the structural reforms starting with the public finance and the banking system. Today the GDP is three times larger and the GDP per capita is five times greater than 2001.

The recent global crisis has left the Turkish economy and the banking system relatively unscathed thanks to these policies. Therefore, what Greece needs today is a return to the drachma while implementing those reforms requested by the troika with their assistance, not the opposite.

Saruhan Ozel

Chief Economist,

DenizBank,

Istanbul, Turkey

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