I Agree

Yes. I agree.

The negotiations concerning the Greek bail-out were absurd. They showed in vivid highlight just how foolish the entire Euro exercise is. Countries with economies as varied as those of Europe ought not bind themselves together without going the whole way into some sort of federal political and budgetary union. That would allow funds to move about internally so that regions falling into distress can get help ‘anonymously’ without the need for the tragic farce we have just witnessed.

This is what happens inside the United States. Funds routinely move about, Federal programs make sure that some basic services – such as Social Security – are paid from a central source so if a state like Florida gets into difficulty bills still get paid and services are still provided. Were this not so, and if Florida had been responsible for, say, those pensions back in 2009, it would have faced a crisis similar to that in Greece. Indeed the imbalances in the flow of funds into and from Washington are what allows many states in America to pretend that they are fiscally secure.

Of course this doesn’t mean that state budgets are immune to crisis. It is still quite possible for reckless fiscal policy to exist at the local level. What the Federal budget does allow, though, is that the adjustments that are made are not as severe as those just imposed on Greece. Florida has not, for instance, been thrown into a depression-without-end. By removing the cost of many basic services from the budgets of the states the central government mitigates the cost of adjustments when a locality errs in its own policies.

All this is, of course, in addition to the benefits of free inter-state commerce and having the same currency.

There is nothing like this in Europe. So the Euro is doomed. As it was from the start. Because local errors and plain happenstance are not going to go away.

There is no news in this. It was well discussed and documented at the time the Euro was launched. Back then the hubris of the pro-Euro technocrats was sufficient to drown out the naysayers. But history is having the last laugh.

So. Yes. I agree.

To what?

To the notion that it is not the Greeks who ought to leave the Euro. It is the Germans.

If the Germans are unwilling to set up a central Euro-federal budget such that internal imbalances can be taken care of automatically, and if they are also unwilling to write down debtor nation debt when it becomes obvious those debts are unsustainable, then they ought to leave the Euro. Because to stay in is simply to destroy it.

Persistent German trade imbalances threaten European economic stability just as much as the uncompetitive nature of historic Greek economic policies. The Germans seem very proud of their export surplus without noting that, in effect, they are also exporting unemployment. Perhaps their economists realize this. Perhaps it is this realization that presses them to impose on Greece what is a depression-without-end: it saves them from having to explain to German voters how unsustainable German policy is.

Were Germany to leave the Euro its new currency would no doubt appreciate rapidly against the now German-less Euro. The necessary adjustment would happen. The Greeks could get back on their feet, their trade would become more competitive, and the Germans would suffer export losses as their currency rose to reflect the true consequences of recent German policy. But the germans would also gain from the cheaper goods they could buy abroad.

This happy outcome seems so much more preferable to the current situation. The Greeks could modernize their economy without being forced to live in perpetual depression. And the Germans could afford to buy vast loads of stuff from their Euro neighbors at bargain basement prices. Heck Germany might even become an importer.

Nah.

I agree that won’t happen.