Tuesday, May 22, 2012

An overview of the EU's dilemma with Greece

French journalist Eric Maurice gives a decent general description of the current euozone dilemma, although he seems to think that Angie's fiscal suicide pact would fix things. That says he doesn't have a very good grasp of the economics of this thing.

Here's how he puts it in No way out? Presseurop 05/18/2012, using the neologism "Grexit" for a Greek exit from the euro currency:

But should we be convinced that a Grexit is the solution? The economists and politicians who have weighed the pros and cons of such a move have failed to provide a convincing case for a Eurozone either with or without Greece. Rather, as Il Sole-24 Ore has noted, the current debate resembles a bluff – and a particularly dangerous bluff for all involved.

Europeans are faced with an impossible choice. A decision to expel Greece from the Eurozone, in a procedure not covered by any European treaty, could result in a loss of confidence in the entire European economic system and undermine the credibility of the EU both as a political project and as world power. At the same time, a drive to maintain the status quo will not only perpetuate policies that are destroying Greece’s social fabric and weaken the cause of democracy in a country that was – as we never tire of saying – its birthplace, but it will also expose Europe to the risk of spending billions of euros for nothing, because the Greek state is now to all intents and purposes a fiction.

In response to a dilemma which has emerged over the fate of a country that accounts for less than 3% of its GDP, Europe has been unable to provide an effective solution. Instead it has been caught in a deadlock arising from its own equivocal status: it is too integrated, both economically and politically, not to be endangered by the Greek crisis, but not sufficiently integrated to provide itself with the means it needs to overcome such an obstacle. Without the single currency and without the single market, it would have been easier to allow the Greeks to default and devalue their currency. [my emphasis]
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"It is the logic of our times
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