LONDON – As turmoil continues in Greece, investment legend Jeremy Siegel believes the tough line is the way forward. Why give in to Greece when other peripheral countries have struggled through?
And if Greece did leave the Eurozone, Siegel argues the country would “muddle through” and ultimately would still be one of the best and most competitive holiday destinations.
ETF.com founder Jim Wiandt interviewed Siegel about the Greek referendum, currency options for the future and the potential risk of contagion amongst neighbouring regions.
Jim Wiandt: What do you think is the way forward on Greece for Europe?
Jeremy Siegel: Honestly, I believe in being very tough here, because we’ve had other countries with problems like Portugal, Spain and Ireland abiding by their responsibilities and obligations, and how does it look if someone else can get a much better deal by holding a referendum and acting tough? That sends an extremely bad signal unfortunately and it would be great if Greece abided, but I think it [the referendum] opens up a can of worms that will more greatly undermine the Eurozone and feed the support for the left-wing parties that certainly do exist and have been coming up in those countries.
I worry much more about that, so my feeling is they shouldn’t run a referendum to allow them to get a better deal. This is the deal, this was the last deal. If you’re ready to accept it, then we’ll talk to you about extending the credit and keeping your banks open.
I think that there will be more disunity by giving in to the Greeks on the left and everywhere else than there would be in standing firm and saying, “If you want support for your banks, this was the last deal”, and I think the last deal wasn’t bad. There was some negotiation there, so it was better than what was on the table before.
Alexis Tsipras should have said, in my opinion, “Listen. I did negotiate a better deal. Let’s go with that.”
Wiandt: Do you think that Europe should then kick Greece out?
Siegel: I don’t think they should be kicked out of the EU. Honestly. That’s another step. Even Britain is in the EU and you don’t have to have that [single] currency.
My statement is not to say: “You’re out”, but “This is the deal. We will not extend more credit to the banks.” Then they’re going to muddle through. They may have a floating drop into the Euro. They might adopt two currencies, and that’s a possibility.
Gresham’s law dictates you can’t have two currencies, but that only applies if there’s a fixed exchange rate between them. If there’s a floating exchange rate, there are many cases in history where you have two currencies that are floating. If the Greeks want to use the Euro, I would say, “Fine.”
But by not extending credit to the banks, they are going to have to think of a way to try to monetise these deposits in some form or other.