Tuesday, March 30, 2010

Forget Greece, Germany Should Leave the Euro...

So says Joachim Starbatty in the NY Times:
The Greek crisis is only the first of what could be several tremors resulting from the euro’s original sin. While few are willing to say it yet, the solution is clear: the only way to avoid further harm to the global economy is for Germany to lead its fellow stable states out of the euro and into a new and stronger currency bloc.


If Germany were to take that opportunity and pull out of the euro, it wouldn’t be alone. The same calculus would probably lure Austria, Finland and the Netherlands — and perhaps France — to leave behind the high-debt states and join Germany in a new, stable bloc, perhaps even with a new common currency. This would be less painful than it might seem: the euro zone is already divided between these two groups, and the illusion that they are unified has caused untold economic complications.

A strong-currency bloc could fulfill the euro’s original purpose. Without having to worry about laggard states, the bloc would be able to follow a reliable and consistent monetary policy that would force the member governments to gradually reduce their national debt. The entire European economy would prosper. And the United States would gain an ally in any future reorganization of the world currency system and the global economy.

Does this make any sense?


  1. Hi David,

    And he calls himself a Professor?

    He doesn't even mention the inherent problems of bundling sovereign debt with a single currency (i.e., non-sovereign money), i.e., the Eurozone's fundamental flaw.

    He then goes on to assume the U.S. has a "debt problem". Ridiculous. Clearly, the ability to print money and full sovereignty is superior to this silly "stronger-currency bloc", which will have a real debt problem just farther down the road.

    I can't believe that the NY Times printed this....yes I can.

    Thanks for linking to my article,


  2. Germany leave the Euro?

    Yes, it makes sense. Earlier last month I wrote a series of letters and posts recommending Germany pull out of the Euro myself. Mediterranean Europe and Germanic europe are too different in culture, social structure and values. Restore the DM. Leave the Euro to the southern countries who need it, and have similar social values, and are willing to fund those social values.

    Currencies as they are currently used, are the primary means of social insurance and redistribution. People are naturally gregarious to their own ethnic groups, and are naturally not gregarious with what they see as competing groups, and in particular, groups that they see as a permanent drain on their resources.

    Because currencies are a means of social insurance they are inseparable from the social orders that employ them. Countries need their own currencies. The spanish, italians and greeks can then maintain their historical poverty born of their less productive lifestyles, without impoverishing the north. Besides, the north has a new permanent semi-revolutionary underclass it is supporting at home to deal with.

    THe USA has a similar problem. It is a domestic empire over somewhere between four and six separate cultures, with entirely different economic interests, and cultural interests, and political friction between them is becoming intolerable. The only reason that america government has functioned since the 1900's, is because of the two party system, and the south's rejection of the republican party. With the south now more pragmatic, this prior balance has been shattered, and the country is increasingly a north and west against a south and interior. For exactly the same reasons as europeans face these problems.

    It is all well and good to believe in the myths of egalitarian secular humanism, while you're living in a temporary era of post-war, then post-soviet prosperity. But western civilization no longer has it's economic advantage over the rest of the world. The west will be permanently poorer, even if retaining it's ordinal status, for some period of time, simply due to the northern european people's ancient tendency to eschew corruption.

    Since a currency is a reflection of social values, nations need their own currencies. The euro was a failure. Return to the DM.

  3. The situation is a little more nuanced than Joachim Starbatty states.

    Of the PIIGS only Portugal, Italy and Greece and be legitamately labled fiscally irresponsible. Spain and Ireland were running surpluses until the global financial crisis and both had very low public debt levels compared to the "stable" states. Both countries are running huge deficits now but that is because they have been hit much harder by the Great Recession.

    All of the eurozone countries have undergone a significant disinflation sympomatic of a negative AD shock. But whereas most of the eurozone are 8-10% below trend this year in real GDP, Ireland (28%), Spain (14%) and Slovakia (14%) are down much further. The "real" problem is that the eurozone has suffered a gigantic nominal shock. Even Portugal, Italy and Greece would not be faced with difficulties if this were not the case.

    The eurozone needs to apply more monetary stimulus, not break itself up.

    P.S. Symptomatic of the lack of monetary stimulus is the fact that most of the euro pegged countries (all but Denmark) are in a state of economic depression. Bulgaria, Estonia, Latvia and Lithuania are down 17%, 35%, 40% and 34% below their real GDP trends respectively. For comparison the US is only down 9% versus trend this year.

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  5. If Germany did want to leave the euro, I would expect most of the other countries to ask to go with it, and those that did not would soon want to rejoin after they had pared down their debt with a bit of devaluation. The other countries attributed some of Germany's economic success to the DM, and wanted its credibility for themselves without the cost of establishing a track record of toughness. Unfortunately, politicians being what they are, many countries have allowed their their anchor chains to become stretched to the limit and are now going to have to either allow the natural restoring forces of a single currency to operate or go back to square one. I suspect that what we are going to see is at most break offs, rather than a break up, of the euro, and the end result will be a euro that is as hard as nails.

    If the US does not think it has a debt problem now, it may well end up learning the hard way, like the Germans did. Creditors are not stupid.