Robert Jenkins has spotted an elephant. A Greek elephant, in fact, which may explain why so few others seem to have spotted it earlier. Should Greece leave the euro, he sees such dire consequences that we must do anything and everything to stop it happening. Starting with a run on Greek banks, he sees bank failures, border controls to enforce capital controls, a lawyers’ bunfight over whether debt is in euros or drachma, contagion and capital flight spreading to Portugal, the cessation of bank lending across the euro. Economic activity halts, and the four horsemen of the apocalypse arrive, demanding to be paid in dollars.

No, I didn’t make any of this up (except for the horsemen). Should Greece leave the euro, Jenkins, an external member of the interim Financial Policy Committee of the Bank of England really did write: “economic activity halts.” Look it up. It’s in today’s FT. The entire economic engine of the EU can be brought to a juddering halt by devaluation in a country which amounts to less than 2% of the GDP of the eurozone. If it really is that fragile, then we’re all doomed, DOOMED!

Jenkins is a serious City figure and was boss of F&C Asset Management until 2009 – not, it must be said, the group’s finest years. Nevertheless, he’s right when he says “the peoples of northern Europe need to understand that their interests lie not in hounding the Greeks out but in keeping them in.” Unfortunately, it’s far from clear that the interests of the Greeks lie there too. Debt forgiveness, default, rescheduling and an infusion of funds will count for nothing if the economy is as fundementally uncompetitive as Greece’s. The funds will cover the cracks but within a short time, perhaps as little as six months, the rust will start to show through  the paintwork.

A devaluation now would indeed produce some of the horrors that he describes. It would arbitrarily ruin innocent people, but it is preferable to the years, perhaps decades, of austerity which would be needed to stabilise the Greek economy within the euro. In practice, the popular will will have forced an exit long before then.

The IMF has plenty of experience in helping ailing economies, and while its track record is mixed, its basic approach still looks like the least bad way we’ve yet found to revive them. The formula is quite simple. Reorganisation of debt (usually a euphemism for default) followed by reform of corrupt practices, sinecures and cartels. A squeeze on public sector spending and  – crucially – devaluation. It can actually work better if the squeeze precedes the devaluation, as it has in Greece. Jenkins need not look far to see an example. In 1992 a country was forced out of the fore-runner of the euro, despite the misery its leaders imposed on the populace to try and stay in. The result was 15 years of unbroken growth. That country was, of course, Britain.

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