What’s wrong with the Euro?
May 6, 2010, 8:53 am
Posted by Margaret O'Brien Steinfels
The travails of the Greek debt crisis are probably not at the top of anybody’s worry list–there are so many! But Joseph Stiglitz who has a bent for counter-crowd thinking has this at the Guardian and dares to say things that haven’t made it into most of the U.S. coverage.
“Reform the euro or bin it: The Greek crisis puts the currency’s very survival at risk.”
http://www.guardian.co.uk/commentisfree/2010/may/05/reform-euro-or-bin-it-greece-germany
It appears that Paul Krugman is writing in the same vein: http://krugman.blogs.nytimes.com/2010/05/04/default-devaluation-or-what/ This one, “Greek End Game,” http://krugman.blogs.nytimes.com/2010/05/05/greek-end-game/
I was a bit dismayed that he mentioned “the almost forgotten exchange rate mechanism that preceded it and fell apart when speculators attacked sterling in 1992″ since I was one of those speculators (although so tiny that you would have had to be looking down from the top of George Soros’ shoes with a magnifying glass to see me).
Stiglitz is correct in my opinion about what is happening. On the other hand, there is no turning the clock back. But I will especially point out that this is the way that regulatory changes ALWAYS proceed. As in life, when one attempts a sweeping change, one gives it one’s best shot. It never works out to plan. Instead, it very frequently explodes. Why should we be surprised?
The Achilles Heel of the Eurozone has never been the Euro. It’s been the “Community”. The EU is a massive experiment in overlaying a sort of federal structure over (let’s remember) a bunch of different countries that were at war with each other just half a century ago. It will take a generation or two to work all the kinks out and I predict that there will be several melt downs before that happens. Europe’s reaction (as ours will be; look at the Health Care Bill) will be rather ad hoc and not very far reaching. But they will get through this and when the dust settles we will find that they did indeed make progress.
On a side note, if Stiglitz thinks that labor has not been flowing through the EU very effectively, he hasn’t been to Ireland this decade. If you want to hear a bartender or an electrician with a brogue, you now pretty much have to go to Boston.
I actually think that a lot of people have made this point, though Stiglitz definitely adds interesting analysis: that Germany, in particular, but also France, and to a lesser degree Italy benefit disproportionately from the Euro because they have a lot of goods to export — it helps enormously if their prime import customers use the same currency. If Greece withdrew from the Euro it would be required to default because all of its debts are in Euros. Likewise, however, its ability to import German cars and French wine would drop to nil because those goods would become relatively so much more expensive. Greece is truly in a tough spot, notwithstanding that its problems are significantly of its own making, other countries (i.e., Germany) really do profit much more from the Euro than Greece will in the foreseeable future. That’s why Germany’s actions over the last few weeks have seemed so myopic. This isn’t just about Greece’s self-interest.
“On a side note, if Stiglitz thinks that labor has not been flowing through the EU very effectively, he hasn’t been to Ireland this decade.”
I think Mr. Stiglitz was just making a comparison to the old pre-ARRA style labor market the US used to have. I do not believe he was implying labor was moving ineffectively.
“The travails of the Greek debt crisis are probably not at the top of anybody’s worry list…”
I would imagine the relative ranking is a funcition of what periodicals and other information sources one reads.
The Greeks have certainly come to sound like the bad boys (and girls) of the Eurozone. And the rioting that has emerged from the protests doesn’t help. The most forthright comment I’ve heard was from a Greek woman in Athens, speaking English, saying, “We did this to ourselves, and now we’re paying the price.” That doesn’t exactly capture the complications of whom did what to whom, but it doesn’t seem to be a sentiment shared by her fellow citizens.
The concern, of course, is that the reaction of the wealthier Eurozone countries to the travails in Greece, is like the first-class passengers on a floundering ocean liner who say “your end of the ship is sinking”.
The Greeks did this to themselves, but by being part of the Euro zone they have tied one hand behind their backs in being able to address their problems. Which is to say, they probably kept using the same strategies even after the game had fundamentally changed, but if they freed that other hand, the pain would spread much further and deeper than it otherwise would. So whether Germany likes it or not, and I think this is Stiglitz’s main point, because the original Euro treaties did not include measures that would keep the Greeces of the union from “doing this to themselves,” the Euro zone countries are now obligated to try to do something for Greece, if they want to keep the Euro as a unified and stable currency.
And….I think Stiglitz is also saying the Eurozone will have to have more of a fiscal community than they do now, as Unagidon notes above.
The Greeks are innocent victims of a manipulation by a conspiracy of central bankers. Their debts are chump change compared to the rest of the world. The bankers are creating another Argentina melt-down in a shock and awe gamble for increased power and fewer rules either in the U.S., Britain or in any international framework. The only ones to profit will be the day traders and computerized manipulators of markets. The rest of us are cooked.
The Greeks did this to themselves, but by being part of the Euro zone they have tied one hand behind their backs in being able to address their problems.
That remains to be seen. The question is whether or not Greece, like Citi Bank or Lehman, is too big to fail.
Isn’t the question the reverse: Greece is too small to be REALLY saved?
Isn’t the question the reverse: Greece is too small to be REALLY saved?
From an investor’s standpoint, I believe it’s just the opposite. Paradoxically (Zeno would be proud), they might even breathe a sigh of relief — the implication being that damage control mechanisms might stem the losses. The problem is that Greece may simply represent the first crack in an unsound structure — ie. the Eurozone. Once a fissure appears, investors worried that the whole structure may soon collapse, begin an uncontrollable stampede for the exits that makes such a fear into a self-fulfilling prophecy. Saying that Greece’s problems are self-inflicted won’t compensate for the loss of confidence in euro-denominated paper that effects everyone beyond Greece’s borders. The Greeks may have tied one hand behind their backs, but a noose may be at the other end of the rope.