The Greek economy is undergoing a tragic depression and the core of Europe doesn’t seem to care much. This is one thing we shouldn’t downplay. How we got here is a whole other topic though. It’s common for liberals to view the Greek depression as a result of a public response (austerity, lack of currency sovereignty, etc). Conservatives, on the other hand, say that Greece just isn’t competitive and basically needs to pull itself up by its bootstraps, reduce its debt and be more responsible. There’s probably a bit of truth in both positions, but there’s also some hyperbole in both.
We should be very clear that borrowers and lenders don’t get into trouble by no choice of their own. So, many banks made bad loans (ie, Germany, you screwed up) and many borrowers overextended themselves here (ie, Greece you screwed up).[b] Of course, the problem with the Euro is that highly indebted current account deficit countries are a virtual guarantee as a function of the common currency. And this is where the core’s lack of sympathy is frustrating.
They want all the benefits of being the current account surplus countries in a common currency region without having to ever support the current account deficit countries who will, by definition, need some form of redistribution or internal deflationary and depressionary rebalancing as is going on with Greece.[/b[
One can argue that Greece was naive to get into such a currency union without a specific mechanism for rebalancing, but what we’re seeing now from the politicians in the core, given Greece’s 7 year depression, is looking unsympathetic at a best and downright cruel at worst. But make no mistake – Greece is not being treated like a “hostile occupied state” as this Telegraph article claims. They chose to get involved in this currency union and as far as I’ve seen
they’ve failed to understand its inherently flawed rebalancing mechanism as badly as the core countries have.
Of course,
when you understand the internal rebalancing problem within the common currency system you can’t help but feel bad for Greece. And that’s what makes Germany’s recent actions so frustrating. There will always be “Greece” in the common currency. For instance, if you kick Greece out then someone else will become the heavily indebted current account deficit country on the other side of Germany’s current account surplus. They won’t be able to devalue their currency so they’ll borrow to make up the difference between the lost income outflows and domestic demand.
And that will go on until it can’t and Germany will throw a hissy fit at that country and kick them out. Rinse wash repeat until Germany kicks everyone out and returns to the Deutschemark which will trade at a huge premium to the rest of Europe and they’ll likely see a huge reversal in many of the last decade’s positive economic trends…..This is truly a case of Germany wanting to have its cake and eat it too.
Originally Posted by JDG 66
-It doesn't! It just... doesn't! No! No! No!
