The Plan To Keep Greece In The Eurozone Painful But Necessary

This article does a good job of explaining the program that has been put in place to make the Greek economy sustainable and enable it to remain in the eurozone. It deals with Greece's two major problems. Its high debt levels and its lack of competitiveness. The restructuring of Greek sovereign debt was effectively a payment by bank shareholders who held the debt to the Greek government. That payment, along with government efforts to increase tax revenues while cutting government spending will bring Greece's debt/GDP ratio down. The austerity plan will lead to a decline in domestic output. That has to be made up by increasing Greek exports. That, in turn, requires Greek products to be more competitively priced. Wages must fall to enable the prices of Greek output to fall. Restoring competitiveness is a long and painful process. If Greece had its own currency it could happen faster with currency depreciation. Since Greece is in the eurozone, that option, which is also painful, is not available. In any case, Greece can no longer borrow money to pay for its imports. Instead of running a current account deficit it must find a way to run a current account surplus and pay for its imports with exports.