As Greece struggles to bolster its withering economy, the rest of Europe must take action in order to prevent a similar situation in other countries, George Mason University economist Tyler Cowen said recently. As part of its second Economics Community Forum, held on Tuesday, Feb. 7, the Interdisciplinary Center for Economic Science in the Department of Economics hosted a discussion, titled “What Has Gone Wrong With Europe?” featuring Cowen, Holbert C. Harris Chair of Economics and general director of the Mercatus Center.
Cowen discussed the current state of Greece and analyzed hypothetical scenarios in which the same type of economic recession worsens in Greece and spreads to other nations. The Greek economy, saddled with unemployment and bankruptcy, affects the rest of the European Union negatively, Cowen said. As a result, the euro continues taking hits in Greece as huge loans continue to keep the country afloat, deflating the currency's value.
During the presentation, Cowen talked about the potential consequences if Greece were to leave the Eurozone, a European economic union of 17 members who all use the euro as currency.
“Upon hearing this news, most people would drain their Greece-based accounts and deposits, and this would lead to an even greater depression,” Cowen said. “In addition, the legal status of any contracts or agreements made in Greece would be uncertain. People would not know how to go through with transactions, and few people would want to trade.”
During the question and answer session, one audience member wanted to know if the United States would be the next Greece? Cowen’s reply: No.
“Greece cannot fix its economy,” he said. “America isn’t willing to fix their economy, but has the ability to do so. We have room to cut spending or raise taxes without hurting the economy.”
What Greece needs to do, Cowen said, is start over. They need to establish their own currency, and while the standard of living would most certainly drop, but tourism would increase and this would slowly stimulate their economy.
Cowen added, “It’s a long process.”