Bloomberg View: Greece's Least Bad Option; Trading, and Regulating, at Light Speed

There’s a school of thought that Greece is destined for so much financial pain that it would be better off outside the euro system. The secessionists’ reasoning goes like this: Suppose Greece somehow resolves its short-term debt problems through default or other means and brings its budget deficits under control. It will still have a crippling lack of competitiveness. Labor costs in Greece have risen much faster than in Germany and the rest of the euro core, making its exports expensive and imports cheap. The result is chronic trade deficits, which must be financed through continued borrowing.

If Greece still had a drachma to devalue, it could cut the price of exports and raise the price of imports that way. Because it doesn’t, it has to restore competitiveness more brutally: by cutting wages, which in turn requires persistently high unemployment to suppress workers’ bargaining power. It’s a political impossibility and an economic disaster, leaving an exit from the euro system as the only choice.