[Tichy]

That is kind of a "milk maid" equation, as we call it in Germany. If the Greeks wouldn't have the Euro, perhaps nobody would have lent them money to begin with. So at least if you advocate countries having their own currencies, you should be aware of that aspect. It's not as if problems (debts) just evaporate with control over the currency. You would have other problems instead.

[eli_gottlieb]

Yes, but it's much better to have a problem you can actually solve by taking responsibility yourself, rather than a problem whose solution relies on someone else being nice to you against their own interest (Southern Europe being on the same currency as Germany).

[Tichy]

But maybe those states would have been bankrupt much sooner, not being able to borrow without the Euro. That is what I mean - no problem would have been solved by not being on the Euro.

[eli_gottlieb]

Ok, let's talk two scenarios. First one: real world. We know how this one turns out.

Second one: Greece was never allowed into the Euro and off the Drachma. So what happens? Well, the lack of productivity in the Greek economy means the drachma stays and goes continually down in relation to the Euro, which we'll presume is the dominant currency-zone Greece wants to import from. The result is that Greece is forced to take responsibility for its own behavior much earlier-on, and without damaging impact on anyone else. At some point, the Greeks, in this scenario, simply cannot import much anything from Northern Europe, but their land, labor and capital become very cheap for external investors. Then, if the Greeks are at all smart, they get exploited for a little while to make foreign capital spend itself improving their productivity, until they can either become self-sufficient or balance their trade via cheap exports.

As Greek productivity improves, the drachma becomes more expensive, allowing the Greeks to then import more on the strength of their own economy rather than by borrowing from someone else.

It's simply a known fact in economics that separate macroeconomic policies and environments demand separate currencies, or else you get a financial crisis of some sort.