Wednesday, July 15, 2015

Why Greece is More Like Argentina than Like Israel

Bernard Avishai, who teaches business at the Hebrew University in Jerusalem, published an article in The New Yorker this week titled “Why Greece Needs the Euro.” A key part of his argument hinges on a comparison between Greece and Italy. In fact, Avishai has it backwards. A closer look at the Israeli experience shows that Greece does not need the euro. Here is why:

After considering the argument that Canada’s flexible exchange rate helped it recover rapidly from the global crisis of 2008, Avishai writes that “Israel is a more telling example than Canada, having suffered an economic crisis much like Greece’s, in the early eighties.” In response to the crisis, he explains, Prime Minister Simon Peres introduced a new shekel pegged to the dollar. “The Israeli government’s decision to keep the new shekel constant and to seek free access to American and European markets was the foundation of the entrepreneurial economy that emerged in Israel during the nineties,” he concludes.

A strange argument. What Avishai inexplicably fails to mention is that Israel quickly abandoned its fixed exchange rate as unsustainable. >>>Read more

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