Brian S. Wesbury and Robert Stein think the Euro is undervalued. Ramesh summarizes what sounds like a rational argument:

By making it impossible for the Greek government to solve its problems through devaluation, it forces the public sector to bear more of the pain of economic adjustment.

But this happy thought feels rather far from reality after reading Peter Boone and Simon Johnson's argument that only allowing the Euro to depreciate will save Greece: 

This new program calls for “fiscal adjustments” cuts to the fiscal deficit, mostly through spending cuts totaling 11 percent of gross domestic product in 2010, 4.3 percent in 2011, and 2 percent in 2012 and 2013. The total debt-to-G.D.P. ratio peaks at 149 percent in 2012-13 before starting a gentle glide path back down to sanity.

This new program is honest enough to show why it is unlikely to succeed.

Daniel Gros, an eminent economist on euro zone issues who is based in Brussels, has argued that for each 1 percent of G.D.P. decline in Greek government spending, total demand in the country falls by 2.5 percent of G.D.P.  If the government reduces spending by 15 percent of G.D.P. the initial shock to demand could be well over 30 percent of G.D.P.

Video of clashes here.

(Image: Protesters shout anti-government slogans in front of the Greek Parliament in Athens on May 5, 2010. Athens police chiefs mobilized all their forces, including those not on active duty, to restore order on May 5 amid rioting during protests against a government austerity drive. Police were put on a 'general state of alert' to deal with the clashes after three people died in a bank that was firebombed on the margins of the demonstrations. By Dimitar Dilkoff/AFP/Getty Images)

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