European hypocrisy in Greek crisisWednesday, May 12, 2010 18:07
So Greece is getting a bailout amounting to 750 billion Euros despite Angela Merkel swearing up and down that it wouldn’t happen. At least she’s getting some serious heat in Germany over it and it looks as if her days in political office are numbered. Apparently she gave in because she did not want to go down in history as the Chancellor who caused the Euro project to fail.
In the meantime, American commentators, such as Paul Krugman, have been talking up the disadvantages of the European currency union, which seems a bit mean spirited, unless you recall that the Europeans made similarly snide remarks about the health of American capitalism in the wake of the sub-prime mortgage blow up. What a difference a year makes!
More fun stuff:
- Remember when the ratings agencies were blamed for the financial crisis and accused of conflict of interest issues due to rating CDO products too leniently? Now, they’re being blamed for rating European sovereign bonds too harshly. The rationale given is that the agencies are American, hence they must hate Europe.
- European leaders have been outdoing each other attacking speculators for bringing about the current crisis in the first place, yet the Belgian finance minister has boasted that his country would make a profit on the loans it would make to Greece due to the spread between the rates Belgium pays for loans and the rates Greece needs to pay. As The Economist notes, it looks like speculation is not evil so long as governments are the ones doing it.
I’ve been previously been of the opinion that unified currencies are great. They should reduce cross border transaction costs and free central banks from government meddling. The corollary however is that governments then lose access to the toolbox of monetary policy to influence the economy. This should be okay, provided that governments are able to responsibly use the fiscal p0licy tools still available to them but I guess asking that governments be fiscally disciplined is too much of a pipe dream. This is why governments are forever hooked on the easy ways out of problems by playing with interest rates and devaluing their currencies.