Will Greece Leave the Euro?

So I'll put my thesis up front: I don't think so; but let me first summarize where I got the idea of the subject.

Paul Krugman recently mentioned that it is a real possibility at this point. He basically says that Greece, even without debt restructuring, will need to somehow propel its economy so that it starts growing again. What he means by that is that somehow they need to become more productive (more output per worker). Now, in the short run, you really only have one alternative --lower wages. That you can achieve through two means: 1. Workers agree to a wage cut; 2. Devaluation (I'm following Paul Krugman here as far as I was able to understand him. There have been other proposals, you can check one of them in the suggested reading section at the end of the blog)

The first one seems hard given the riots we've seen in the news (and in general probably something you should discard first hand in a democracy), the second one is, in principle, also not feasible given that Greece is in the Euro area and any attempt in this direction would signal a bank run and make things even worst.

Paul Krugman then goes to say that considering the unthinkable (Greece leaving the Euro) is similar to what happened in Argentina in 2001 which had a convertible currency and whose government was committed (whatever that means, but I'm looking at things after the fact so he might as well be right) to exchange one Argentine peso for one American dollar.

So far, so good, I agree; but I think the analogy is erroneous because of: 1.Argentina was not in a monetary union like Greece (Greece leaves: whose next?!, with Argentina the buck stopped there). 2. France and Germany have a big investment in the Euro.

Point one should explain by itself, and I think we've seen it with the "shock and awe" policy that was  recently announced (will we ever find less disgusting analogies: "Shock and Awe"?, here is about saving an economy and a system that has made countries which have been for centuries at war to feel closer together).

Point two is, well,more dubious: bygones are bygones; but yet if a country like Greece is allowed to leave the Euro area: wouldn't that put into question the whole European Union?

Suggested readings:

http://krugman.blogs.nytimes.com/2010/05/05/greek-end-game/

http://www.voxeu.org/index.php?q=node/5018