During an enforced absence from column writing I tried to keep up with events – not so much by reading the vast number of books, analyses and speeches, which would have been incompatible with eating and sleeping, but by reflecting on what might have happened if Greece had not joined the euro in 2001. Similar reflections might apply to other peripherals such as Portugal but might need modification in relation to Spain, Italy and Ireland.
The first thing to say is that neither the Greek government nor the Greek private sector would have been able to borrow for so long at German interest rates. The drachma discount rate hovered between 14.5 and 21.5 per cent in the 1990s. Its place was then taken by a scarcely credible 3.25 per cent European Central Bank repo rate from 2002 onwards. Outside the euro, the drachma would certainly have fallen, either gradually or in lurches. Greece would therefore have borrowed less on international markets, and invested more wisely.
I am pretty confident of this initial stage of analysis. But what would have happened afterwards depends, as in so many of these exercises, on innumerable counterfactuals.