Welcome to DU!
The truly grassroots left-of-center political community where regular people, not algorithms, drive the discussions and set the standards.
Join the community:
Create a free account
Support DU (and get rid of ads!):
Become a Star Member
Latest Breaking News
General Discussion
The DU Lounge
All Forums
Issue Forums
Culture Forums
Alliance Forums
Region Forums
Support Forums
Help & Search
General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsBloomberg: Europe’s Insane Deal With Greece
Europes Insane Deal With Greece
If the definition of insanity is doing the same thing over and over and expecting a different result, the leaders of Europe and Greece are insane. After a 17-hour summit, Europes leaders have reached a deal. If the Greek parliament passes a package of reforms by Wednesday night, the countrys creditors will move forward with a third bailout on terms that are much stricter than previous proposals. If the deal proceeds, it will avert the immediate chaos that Greeces uncontrolled exit from the euro area would entail, and enable European leaders to talk about something else for a while. Unfortunately, it does nothing to address the fundamental issues that have repeatedly landed Europe in crisis since 2009.
Former German Economic Minister Karl-Theodor zu Guttenberg quipped that Europe hasnt been kicking the can down the road, its been kicking it up a hill and wondering why it keeps rolling back on its foot. The core issue: Although the EU can handle economies of widely varying types and levels of development, the euro area cannot. Greeces gross domestic product per person was about half of Germanys when it joined the euro in 2001. Since then, Greeces competitiveness relative to Germanys has slid by about 40%. For a currency union to handle widely divergent economies, they must be deeply integrated across multiple dimensions. In the U.S., the average citizen of Mississippi makes just $20,618 a year, compared with $37,892 in Connecticut almost as big a gap as between Greece and Germany.
Yet the U.S. doesnt worry about a Missexit, because the country has various mechanisms for smoothing over differences among its states. The recent problems of Puerto Rico show the danger of being locked to a currency without such buffers. The mechanisms include large fiscal transfers- by necessity currency unions are transfer unions. Last year, 28 U.S. states sent the equivalent of 2.3% of their gross domestic product through the federal budget to the other 22 states. The biggest donor, Delaware, gave 21%. The biggest recipient, North Dakota, got 90%. By contrast, in 2011 Germany made a net contribution of 0.2% of its GDP to the EU budget, while Greece received 0.2%. Would German voters really support a tenfold jump in their contributions from 210 to 2,100 per person?
Large-scale fiscal transfers are not the only mechanism needed. Mississippi has probably run the equivalent of a current account deficit with New York ever since the Civil War. Every April, the banks in the Federal Reserve system reallocate assets and smooth over such regional imbalances. By contrast, when Greece runs a deficit with Germany for example, due to trade with Germany or capital flight from Greece its central bank accumulates debts to the Bundesbank indefinitely. The Bundesbank currently holds more than 500 billion euros in credits against other euro zone central banks. Again, would German taxpayers be willing to see the Bundesbank regularly write off some portion of those liabilities?
If the definition of insanity is doing the same thing over and over and expecting a different result, the leaders of Europe and Greece are insane. After a 17-hour summit, Europes leaders have reached a deal. If the Greek parliament passes a package of reforms by Wednesday night, the countrys creditors will move forward with a third bailout on terms that are much stricter than previous proposals. If the deal proceeds, it will avert the immediate chaos that Greeces uncontrolled exit from the euro area would entail, and enable European leaders to talk about something else for a while. Unfortunately, it does nothing to address the fundamental issues that have repeatedly landed Europe in crisis since 2009.
Former German Economic Minister Karl-Theodor zu Guttenberg quipped that Europe hasnt been kicking the can down the road, its been kicking it up a hill and wondering why it keeps rolling back on its foot. The core issue: Although the EU can handle economies of widely varying types and levels of development, the euro area cannot. Greeces gross domestic product per person was about half of Germanys when it joined the euro in 2001. Since then, Greeces competitiveness relative to Germanys has slid by about 40%. For a currency union to handle widely divergent economies, they must be deeply integrated across multiple dimensions. In the U.S., the average citizen of Mississippi makes just $20,618 a year, compared with $37,892 in Connecticut almost as big a gap as between Greece and Germany.
Yet the U.S. doesnt worry about a Missexit, because the country has various mechanisms for smoothing over differences among its states. The recent problems of Puerto Rico show the danger of being locked to a currency without such buffers. The mechanisms include large fiscal transfers- by necessity currency unions are transfer unions. Last year, 28 U.S. states sent the equivalent of 2.3% of their gross domestic product through the federal budget to the other 22 states. The biggest donor, Delaware, gave 21%. The biggest recipient, North Dakota, got 90%. By contrast, in 2011 Germany made a net contribution of 0.2% of its GDP to the EU budget, while Greece received 0.2%. Would German voters really support a tenfold jump in their contributions from 210 to 2,100 per person?
Large-scale fiscal transfers are not the only mechanism needed. Mississippi has probably run the equivalent of a current account deficit with New York ever since the Civil War. Every April, the banks in the Federal Reserve system reallocate assets and smooth over such regional imbalances. By contrast, when Greece runs a deficit with Germany for example, due to trade with Germany or capital flight from Greece its central bank accumulates debts to the Bundesbank indefinitely. The Bundesbank currently holds more than 500 billion euros in credits against other euro zone central banks. Again, would German taxpayers be willing to see the Bundesbank regularly write off some portion of those liabilities?
InfoView thread info, including edit history
TrashPut this thread in your Trash Can (My DU » Trash Can)
BookmarkAdd this thread to your Bookmarks (My DU » Bookmarks)
0 replies, 479 views
ShareGet links to this post and/or share on social media
AlertAlert this post for a rule violation
PowersThere are no powers you can use on this post
EditCannot edit other people's posts
ReplyReply to this post
EditCannot edit other people's posts
Rec (5)
ReplyReply to this post