If the euro's allowed to come un-done,
But Greece in the ranks
Will be best for the banks
In Frankfurt and Paris and Lon-don.
With all the Greek unrest, European can-kicking and German resistance, many ask: why keep Greece in the euro zone? After all, they're effectively bankrupt and everyone knows that they will default sooner or later. However, those who have thought the situation through say that, while an orderly Greek default within the euro will bring pain, a chaotic default in a "new drachma" would bring disaster, both for the Greeks and their European creditors. As a Bloomberg editorial put it:
"The possibilities range from runs on European banks to violent rioting in the streets of Athens -- or even civil war... a prepackaged, well-managed bankruptcy, not unlike the ones arranged by the Obama administration for General Motors Co. and Chrysler Group LLC in 2009, would be better than letting the chips fall where they may."
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Back in the late 90's and living in DC, I dated a woman who was an economist at the World Bank. Naturally, much of our relationship chit-chat centered around economics and geopolitics.
ReplyDeleteI remember her vividly predicting that the Euro would fail, at least in its current form. Her reasons were low labor market mobility, disharmony of tax and labor laws, and myriad cultural differences. It is interesting to see some of her predictions come true.
So many recognized and pointed out these inherent flaws, and yet the whole misbegotten exercise went ahead. What we have is not sustainable, yet not easily undone either.
ReplyDeleteAgreed. I think that there was more than a little "Let's band together as a economic and political counterweight to the US" going on. Many nations suffer from this sort of thing (see: Canada), and complain loudly, but no one wants to commit the blood, treasure, or make enough babies to change the equation.
ReplyDeleteLast week at a bar in Orlando, I received an involuntary education on why Europe's system is SOOOO much better than ours, from a bunch of Norwegians. I pretty much told them the above point, and they had no retort to that.