Jacob Funk Kirkegaard, Columnist

A Greek Exit Could Make the Euro Area Stronger

May 22, 2012 at 11:00 PM UTC

Jacob Funk Kirkegaard has been with the Peterson Institute for International Economics as Research Fellow, since 2002. His current research focuses heavily on structural economic reform issues in the European Union, fiscal and debt sustainability analysis. Jacob has further published on issues such as pension systems, demographic change, high-skilled immigration, workforce skill-levels, offshoring and outsourcing, solar and wind energy, and firm-level FDI analysis. Prior to joining the Institute, Jacob worked with the Danish Ministry of Defense, the United Nations in Iraq and in the private financial sector in New York City. He is the author or co-author of the following books: “US Pension Reform: Lessons From Other Countries” (2009, 384p); “The Accelerating Decline in America's High-Skilled Workforce: Implications for Immigration Policy” (2007, 132p); “Accelerating the Globalization of America: The Role for Information Technology” (2006, 256p); and “Transforming the European Economy”

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A Greek exit from the euro area would inflict heavy damage in Greece and throughout Europe. It could also be one of the best things that ever happened to the currency union.

Greece’s repeat parliamentary election next month will serve as a referendum on whether the country should end its 12-year membership in the common currency. An affirmative answer would trigger a cardiac arrest of the Greek economy, as the banking system collapsed and foreign suppliers refused payment in drachmas. The financial system of the euro area, by far Greece’s biggest international creditor, would suffer hundreds of billions of euros in losses.