Friday, July 3, 2015

Germany Will Never Let the Greeks Leave the Euro

     There's just no doubt about it. If you choose to believe only one of my many claims I periodically make in my prolific number of posts please believe this claim. If you don't understand this you will understand nothing about the current crisis.

     The Germans aren't letting the Greeks go anywhere.

     Indeed, when you hear the details, you begin to think 'Great deal for the Germans but what do the Greeks get again?'

   "For Germany, a weak currency has been a ticket to prosperity. The country not only needs the euro, it needs the euro zone’s weakest members to remain."

   "Booting out the weak members of the eurozone won’t solve the continent’s economic problems. Such a bold move would cause more harm than good for core members of the euro, most notably, export-driven Germany. A coordinated effort to share the pain seems to be the best option out there, but it’s unclear how much pain the core eurozone countries are willing to take."

    If the core countries aren''t willing to take any why should the periphery be? The only possible reason could be if they gain more from the arrangement which is clearly not the case. Indeed, how does Greece-or for that matter, Italy-gain?

   "The nature of these meetings is that the hallway chatter is always more interesting that the formal program. Part of the reason why is that, particularly when talking to journalists, the businesspeople or politicians tend to regard those conversations as off the record. So I’ll abide by that here. One of the German execs was a consultant, and the other headed what I’ll call a quasi-official German organization."

   "They were slightly irritated by the pessimism I’d expressed earlier in the day. “Don’t you realize,” one of them said, “that the cost to us (Germany) of bailing out Greece is far less than it cost us to reintegrate East Germany after the wall came down in 1989?”

   "I almost choked on my croissant. Yes, I replied, I am aware of that. I lived and worked in Berlin as a journalist in the mid 1990s, when that very painful (economically speaking) process was taking place in Germany. But doesn’t that, I said politely, rather beg the question: Germany integrating their brethren, who’d been isolated and impoverished during the cold war, was a dream come true, whatever the cost. Germans, on the other hand paying to bail out Greece is, to average German, rather the opposite of a dream come true, is it not?"

  "Here was my ‘choking on my croissant’ moment number two. Most economists would agree with what my friend at the meeting had said; but he seemed either oblivious (not likely) or simply unconcerned (more likely) with the flip side of what he had just uttered. Italy, to take the third-largest economy in Europe, one with a sizeable and modern industrial base, is stuck with a currency — the euro — which is stronger than the old lira would be under current circumstances. But membership in the euro zone means Italy can’t devalue to bring some relief to its exporters."

  Again what does Greece get by membership in the euro? It's less clear. I have to agree with Sumner that even though it might have been better had the Greeks not joined the euro-the system is just wrong; you can't have monetary without fiscal union-it still would be much more painful to leave now. 

  This doesn't mean they couldn't leave-and I would argue if the EU simply won't give them a better deal then they should walk. Of course, Tsipras' calculation is that they probably will give them a better deal rather than let them walk. 

  However, you can't deny that the pain would be considerable-and there's no way to exactly quantify how much. It could be very painful-or maybe not quite so painful though still painful; that's what a risk is. 

  Whatever the benefits Greece gets-and there are presumably some like being part of a trade bloc, etc-the Greek people certainly want to stay.

   A lot of this is about national pride and political identity. The Greeks consider themselves the quintessentially Western nation. Yes, Tsipras has palled around with Putin recently-and maybe some of the socialist and Communist types in his party are  a little more biased towards Russia and China-but overall the nations self-image is very much part of the European and Western project. 

  They take very seriously their status as the cradle and their country the birthplace of Western Civilization. So they don't want to leave. 

  However, I would argue they should leave if they can't get a better deal. But they can and will-if they vote no on Sunday. . 

  Again, the there will be a deal whether the Greeks vote yes or no-not Grexit. 

  However, voting no will get them a much better deal and a yes vote pretty much usurps their own sovereignty. 




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