(Original post by chefdave)
But as you've almost admitted currency devaluation reduces real wages anyway because it drives up the cost of imports, the Greeks intuitively know this which is why they tend to be in favour of keeping the Euro. By you're own criteria then a shift back to the Drachma fails because it erodes incomes , further it fails the Greeks because it attempts to turn greece into a country sized export processing zone, sort of like Europe's answer to China. There are two problems with this, (1) Greece's export capacity is limited to food/drink and 'invisible' exports like tourism (nobody is going to buy a Greek made car), and (2) it still fails to solve the structural problems of excessive public and private sector borrowing.
The main cheerleaders of the default/devalue/and de-couple paradigm are the faux-libertarians and right-wingers who view currency manipulation as a sort of economic panancea. Indeed they've been preaching this mantra so often I believe it's crippled their ability to analyse the situation objectively.
Yes, that's exactly what I'm saying - increasing competitiveness does, to some extent, mean reducing labour costs, which will result in a drop in living standards for those affected.
I wasn't presenting devaluation as a panacea, there would be pros and cons. I was really just pointing out that, if Greece wasn't in the Euro, short-term austerity would be forced upon it by devaluation, rather than the IMF/EU.
Greek's exports are much more varied than just food/drink/tourism. They tend to be 'components' rather than consumer end-products: