Η εμπλοκή του ΔΝΤ στην Ελλάδα ήταν μια ολοκληρωτική καταστροφή: ξανά και ξανά, η αποτυχία του να αντιμετωπίσει κρίσιμα ζητήματα έχει φέρει πόνο στους Έλληνες. Όταν τα μέλη του δ.σ. του Ταμείου συνεδριάσουν την Δευτέρα, θα πρέπει να συμφωνήσουν να διαγράψουν τα χρέη της χώρας και να αποχωρήσουν.
Germany, Not Greece, Should Exit the Euro
The latest round of wrangling between Greece and its European creditors has demonstrated yet again that countries with such disparate economies should never have entered a currency union. It would be better for all involved, though, if Germany rather than Greece were the first to exit.
After months of grueling negotiations, recriminations and reversals, it's hard to see any winners. The deal Greece reached with its creditors -- if it lasts -- pursues the same economic strategy that has failed repeatedly to heal the country. Greeks will get more of the brutal belt-tightening that they voted against. The creditors will probably see even less of their money than they would with a package of reduced austerity and immediate debt relief.
That said, the lead creditor, Germany, has done Europe a service: By proposing the Greece exit the euro, it has broken a political taboo. For decades, politicians have peddled the common currency as a symbol of European unity, despite the flawed economics pointed out as far back as 1971 by the Cambridge professor Nicholas Kaldor. That changed on July 11, when European finance ministers agreed that it could be both sensible and practical for a member country to leave. "In case no agreement can be reached," they said, "Greece should be offered swift negotiations for a time-out."
Now that the idea of exit is in the air, though, it's worth thinking beyond the current political reality and considering who should go. Were Greece to leave, possibly followed by Portugal and Italy in the subsequent years, the countries' new currencies would fall sharply in value. This would leave them unable to pay debts in euros, triggering cascading defaults. Although the currency depreciation would eventually make them more competitive, the economic pain would be prolonged and would inevitably extend beyond their borders.
Related: Greece Default Watch
A German return to the deutsche mark would cause the value of the euro to fall immediately, giving countries in Europe's periphery a much-needed boost in competitiveness. Italy and Portugal have about the same gross domestic product today as when the euro was introduced, and the Greek economy, having briefly soared, is now in danger of falling below its starting point. A weaker euro would give them a chance to jump-start growth. If, as would be likely, the Netherlands, Belgium, Austria and Finland followed Germany's lead, perhaps to form a new currency bloc, the euro would depreciate even further.
The disruption from a German exit would be minor. Because a deutsche mark would buy more goods and services in Europe (and in the rest of the world) than does a euro today, the Germans would become richer in one stroke. Germany's assets abroad would be worth less in terms of the pricier deutsche marks, but German debts would be easier to repay.
Some Germans worry that a rising deutsche mark would render their exports less competitive abroad. That is actually a desirable outcome for the world -- and eventually for Germany, too. For years, Germany has been running a large current account surplus, meaning that it sells a lot more than it buys. The gap has only grown since the start of the crisis, reaching a new record of 215.3 billion euros ($244 billion) in 2014. Such insufficient German demand weakens world growth, which is why the U.S. Treasury and the International Monetary Fund have long prodded the country to buy more. Even the European Commission has concluded that Germany's current-account imbalance is "excessive."
Germans know how to live with a stronger exchange rate. Before introduction of the euro, the deutsche mark continuously appreciated in value. German companies adapted by producing higher-quality products. If they reintroduce their currency now, it will give them a new incentive to improve the lagging productivity in the services they produce for themselves.
Perhaps the greatest gain would be political. Germany relishes the role of a hegemon in Europe, but it has proven unwilling to bear the cost. By playing the role of bully with a moral veneer, it is doing the region a disservice. Rather than building "an ever closer union" in Europe, the Germans are endangering its delicate fabric. To stay close, Europe's nations may need to loosen the ties that bind them so tightly.
Clueless in Europe
Despite a slowing Chinese economy, decelerating inflation and a stronger euro, European Central Bank President Mario Draghi has said he will do more to support euro-area growth only "if necessary." He should stop listening to Europe's scolds and do the right thing.
Ben Bernanke, the former chairman of the U.S. Federal Reserve, has reminded us that in November 2010, German Finance Minister Wolfgang Schaeuble described U.S. monetary policy as "clueless." The Fed had decided to step up purchases of Treasury securities to help lower long-term interest rates, in an effort to ward off a small risk of debilitating deflation. Schaeuble described the move as a "sly" effort to weaken the dollar, apparently forgetting how an undervalued euro was boosting Germany's trade surplus and weakening global growth.
Schaeuble's intemperate language illustrates a mindset that is blocking debate of European policy priorities and the economic myths that sustain them. The groupthink was evident as early as 2008, when the financial crisis rendered banks on both sides of the Atlantic desperately in need of capital and short-term loans. Joaquin Almunia, the European commissioner for monetary affairs, portrayed it as a U.S. problem, saying, "We are well-prepared to weather this situation." Jean-Claude Juncker, who headed the group of euro-area finance ministers, was more belligerent: "We have to be concerned, but a lot less than the Americans, on whom the deficiencies against which we have warned repeatedly are taking bitter revenge."
The European thinking proved disastrously wrong. In generously restrained words, Bernanke points out that U.S. gross domestic product is 8.9 percent above its pre-crisis level, while euro-area GDP remains 0.8 percent below. He could have added that Schaeuble also warned that the Fed would stoke runaway inflation. The Fed's preferred measure of inflation remains below its target. The central bank recognized that the real danger was deflation.
The ECB finally followed the Fed with its own securities purchase program in January 2015. But delays and half measures have been costly. Greece and Spain are already in deflationary territory, and Italy is ready to fall into the same trap. Because deflation reduces nominal income while leaving debts untouched, it will make these countries' debt burdens much harder to bear. Worse, the added austerity required to repay the debt will slow their economies and reinforce deflation.
Preemptive economic policy -- one that acts before risks unfold -- requires sound judgment and institutional capability. Facing an economic catastrophe, the Fed improvised and adapted. In the euro area, with its conflicting national interests and unwieldy decision-making mechanisms, the authorities have agreed on an economic philosophy that justifies no action until they have stepped into a morass.
The great risk is that eight years into the crisis, the Europeans have learned no lessons in macroeconomic risk management, and will remain behind the curve. Jens Weidmann, president of the Bundesbank and member of the ECB's Governing Council, has complained that interest rates are too low. Schaeuble recently described low interest rates as an addiction, and his chief economist expressed the same dim view of fiscal stimulus. Meanwhile, the malaise is spreading. As China swoons, so will Germany and an ill-prepared euro area.
The Fed's September decision not to raise its interest-rate target was once again a preemptive step, this time to protect a relatively healthy domestic economy against looming global risks. Euro-area authorities, dealing with more acute fragilities and more dependent on global economic health, should be seriously worried about these risks.
At its policy-making meeting this week, the ECB has another chance to lead rather than follow, by expanding its bond-buying program. If it fails, we'll know who really is clueless.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Ashoka Mody at firstname.lastname@example.org