Analysis - Argentine Crisis Survivors: Greece Should Take Heed

Protests outside the palace, IMF warnings to cut spending, people in suits avoiding the mob, fear of a run on the banks, the spectre of default, a currency fixed to a much stronger economy: Greece, 2011, or Argentina, 2001? "Que se vayan todos!" (They must all go!) was the slogan of the protesters forcing out the Argentine president who locked away their bank savings, triggering default and devaluation. "Thieves!" and "Leave us alone" Greeks yelled. The parallels between the Greek crisis and Argentina's collapse 10 years ago were not lost on Athens protesters last month when parliament voted through more cuts, Reuters reported in an analysis. They floated a balloon asking: "Yesterday, Argentina; Today, Greece; Tomorrow?" That vote cleared the way for a second EU/IMF bailout for Greece that has pacified financial markets for the time being. But opinion is divided over what the future holds and whether Greece should be daunted or encouraged by Argentina's example. Some economists argue that Argentina's default and exit from the peso's one-to-one peg to the dollar -- the "Convertibility" system lasting a decade -- set the scene for sustained economic growth that reached 9.2 percent last year. Others argue that because Argentina's crisis was preceded by a decade of free-market reforms, and followed by a huge surge in world commodity prices benefiting its farm exports, it would be unwise for Greece to attempt to take the same fraught path. Argentines watching from afar often say it is "just like 2001 but, unlike Greece, we were on our own." This underlines the gap in their strategic significance: dollarised Argentina held no risk of contagion for the United States, but an uncontrolled crisis in Greece could spread to Spain and Italy. In Argentina's case, the buck stopped there, in more than one sense, and while bondholders around the world sued it for years over the default, there was no real contagion. But policymakers and economists who were deeply involved in the Argentine crisis draw parallels that could help Greece find solutions and avoid some pitfalls. Read more.