Yesterday I discussed Greece, which owes its creditors about $330 billion, estimated to be 177 percent of the country’s gross domestic product. This post is about a sensible outcome to the crisis.
The euro should be wound up as gracefully as possible before the whole, great European project falls flat on its face, a victim of “the money is more important than people” syndrome espoused by the Right. It would in the longer term help Spain, Portugal and Italy as well as Greece, all of them teetering on the brink. The big problem here is not whether but how to swap currencies without catastrophe. It cannot be done over-night. One idea is to gradually introduce country-specific euros, say, Gr-euro, It-Euro, or Port-euro, eventually switching to new currencies with country-based central banks. Each country’s euro would float against the GerEuro (German) and find its own level at the current exchange rate. Another idea would be to have a 3-tier system, say, “very industrialised”, “semi-industrialised”, and “tourist-orientated”. Greece and Portugal would use the latter. It would cut down the number of currencies being re-created.
However, one of the main reasons for the euro in the first place was to facilitate German exports. Germans would not take kindly to the above idea. Mrs Merkel will not say it, but she is intent on dominating the EU and is quietly doing massive deals with Russia for oil and gas (see post two days ago) while millions have no jobs.
This reminds the historian that Hitler never needed to conquer the continent by force; he could have done it with voracious banks, a huge industrial economy and a woman in charge.
Epicurus would probably say that the Germans should have taken a haircut and the Greeks should enter the 21st Century, pronto. Moderation. Equality of sacrifice. Get along together. Amen. The IMF, which seems to agree about the haircut, could possibly end up saving the situation by rescuing Greece. But the long-term truth is that while we have so many nation states, so many languages, histories and traditions I can see no alternative to reverting to a simpler version of the EU based on the nation state, each with its central bank, until such time as people feel that national borders mean nothing and the EU system can treat every constituent part as merely a region of a single European country, rich or poor. The EU has over-reached, and has to pull back. But let’s not lose the basic idea.
Thank you for writing these posts, they’re very good, and I agree entirely with what you say. Like you, I’m sympathetic to the idea of the EU, even if it has become too over-reaching in the process. But given the fact that your proposals are extremely unlikely to come to fruition, should Greece leave the Euro now and go it alone? Or stay and hope for reform, with the possibility that going it alone could hurt its economy even more? Also, how should a country like Britain respond to the crisis?