Greece Should Leave Euro to Rebuild Economy, Feldstein Says

Harvard University Economist Martin Feldstein
Harvard University economist Martin Feldstein said, while a departure from the euro would generate “chaos” in the short term, a newly traded drachma would be able to devalue against other currencies and return Greece to growth and more robust employment. Photographer: Simon Dawson/Bloomberg

June 7 (Bloomberg) -- Greece should exit the euro area to rebuild its economy with its own currency, Harvard University economist Martin Feldstein said.

“Greece is in terrible shape -- I don’t think it can be fixed,” Feldstein told Bloomberg Television today from Copenhagen. “There is no solution,” barring indefinite financial aid from stronger countries in the monetary union such as Germany.

While a departure would generate “chaos” in the short term, a newly traded drachma would be able to devalue against other currencies and return Greece to growth and more robust employment, Feldstein said.

In contrast, Italy is in “pretty good shape” as Prime Minister Mario Monti enacts an agenda of budget consolidation, Feldstein said. In Spain, the government must prevent regional authorities from driving up budget deficits, which pose a “bigger problem” than the banking crisis.

European leaders have grasped that the two-year-old debt crisis is “serious,” though they lack a “longer-term strategy” on how to deal with indebted member states as they approach their next summit meeting at the end of June, Feldstein said.

Feldstein, a former president of the National Bureau of Economic Research in the U.S. and a chief economic adviser to President Ronald Reagan, predicted that the euro was unworkable before its inception. Last September he said in an interview that the single currency had proved to be a “failure.”

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Mark Barton in London at barton1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net