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That is about all that is left to say about the European situation. Clive Crook writes,

the only sane choice is to accept the logic of the currency union they created and the obligations that go with it. In the medium term, that means closer fiscal union. In the immediate term, it means one thing above all. The European Central Bank must be granted whatever powers it may need to underwrite public debts across the EU.

Not exactly the outcome that the Germans are looking for.

In our lifetimes, these sorts of crises have occurred in countries that were not the most advanced in the world, although they weren't the poorest, either. I am thinking of Latin American countries in the 1980s and some Southeast Asian countries in the 1990s. The resolution took place under the supervision of the IMF. The countries had to impose austerity measures, the creditors had to accept write-downs, and the IMF took over the role of lender to the government. For the troubled country, the deal was you gave up some sovereign autonomy in exchange for being able to continue to function in the world economy.

How does that play out for, say, Italy? Does Europe appoint a "financial control board" to oversee Italy's economic policy? Does the IMF play the same role in Europe that it played in the smaller-country crises?

Incidentally, the new prime minister of Greece will apparently be Lucas Papademos, who was a grad student in economics at MIT around the same time as Krugman, Bernanke, Rogoff, and Kling. Have a nice day, Lucas.

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COMMENTS (8 to date)
Rayson writes:

If you consider all alternatives from a political and an economical point of view, there will be no other solution than "disassembling" the Euro.

A "transfer union" won't be accepted by Germany and some of its neighbors, and a "financial control regime" won't be accepted by the "Southern" members like Italy. Maybe verbally, but not in practice.

There is no "win-win" out of this, and the best political outcome keeps Germany and France together in some way.

david writes:

"and Kling"? Did you mean "and me"?

Mark Anthem writes:

Most people in EU labor under expanding Russian Doll shells of regulations between each actor and nearly every transaction and at any moment any common good alarming approaches being a luxury.

A better world would be if each US state were like the previously independent European nations, and we traded and competed fiercely together with winners and losers.

Tragically, European nations are becoming brightly lipsticked facades of a commonly found military autarky pig. A pig America pretends to know how to feed, pen, and show off at the 4H summit every year.

Jean Parmesan writes:

I have been confused by the reporting on this topic. Why is every problem that Greece has linked to the euro? If Greece's official currency was not the euro, how does this change anything?

Greece owes a lot of people a lot of money. Obviously, this means someone is going to be taking a large haircut. Euro or no euro, this fact remains unchanged.

Patrick writes:

@Jean Parmesan: Greece could devalue the drachma and lower real wages to a competitive level without going through a deflationary depression.

Joe Cushing writes:

We've had a few states that were in unable to pay debt payments on time. Why is there no uproar here? We didn't bail them out. Or did we?

Taeyoung writes:
Does Europe appoint a "financial control board" to oversee Italy's economic policy?
What? The Great Powers already have plenty of experience with this kind of thing from their experience with Egypt. Just establish a Caisse de la Dette Publique in each of the bankrupt countries, assign commissioners from the solvent powers, and give them power over taxation and disbursements. Perhaps Lord Cromer would be available.
Mark Brady writes:


"Greece could devalue the drachma and lower real wages to a competitive level without going through a deflationary depression."

Agreed, and if it sticks with the euro, it can't.

That said, Jean Parmesan has a point. To which the answer is, that Europe's rulers have invested too much political capital in monetary union to permit its collapse.

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