So Long, and Thanks for all the Drachmae
Europe ought to consider giving Greece a lovely parting gift. Thanks for coming over! But the hour's late, and after your $146 billion bailout, tomorrow's hangover promises to be quite a nasty one.
May 4, 2010 - 12:00 am
Greece has been bailed out to the tune of $146 billion — the priciest ever. But instead of a bailout, Europe ought to consider it a lovely parting gift. Greece, thanks for coming over, but the hour is late, and tomorrow’s hangover promises to be a nasty one.
Oh — and Portugal, Ireland, Italy, and Spain? Won’t you please grab your coats and hats and follow Greece outside?
The party was a fun one — at least for certain guests — but the time has come for the euro to go. Greece should be the first out, as a condition of the bailout — er, of the lovely parting gift. Then the rest of the PIIGS need to follow suit. And after that? Germany and France can turn out the lights on the eurozone.
The eurozone, as I’ve said from the start, was ill-conceived, and for a very simple reason. With few exceptions, a currency should only be as widespread as a labor force is mobile.
I can see this is going to take some explaining, but I’ll keep it short and simple.
The United States is a big country, in terms of area and population. But a single currency works just fine for 300-plus million people, spread out from sea to shining sea — and all the way out to Hawaii and to Alaska, too. And it works for us because anybody can be a Californian or a Texan or a North Carolinian or a South Dakotan. We’re all Americans, and there’s very little, apart from personal taste, to keep us from living anywhere we choose.
So if jobs disappear in California, for example, people can and will go to Texas.
And that means that a single monetary policy can and will work for the entire nation. Each state’s economy and employment don’t need to rise and fall together, because millions of people maintain the balance themselves — by moving around. And Americans move around a lot, more than any other people in the world.
So Texas and California can get away with having a uniform monetary policy, even when California has taxed and spent and regulated itself into looking like Greece, while the Texas economy is stronger than, say, Germany’s.
Now let’s look at those same two eurozone examples: Germany and Greece. Just like Texas and California, they use a single currency and have a uniform monetary policy set for them by others.
We’ll go way out on a limb here, and pretend that Greece has just taxed and spent and regulated itself into oblivion, while the German government has acted more-or-less responsibly. OK, maybe we’re not so far out on that limb.
The normal course for a country in Greece’s situation would be to devalue the currency — to make Greek labor and exports and, most importantly, Greek debt, much cheaper vis-à-vis Germany’s. And Greece could slash interest rates to get the economy churning again, or boost them to attract foreign capital.
But Greece can’t do any of those things, because Athens surrendered the drachma, and its monetary policy, to its new overlords at the European Central Bank. And the ECB won’t do any of those things, lest it destroy Germany’s economy — and France’s and Holland’s and Norway’s, too.
In our American example above, when Sacramento screws the pooch, a lá Athens, then Californians head east and make new lives. But are Greeks going to give up their ancestral homelands to find work in Germany? By and large, no. And if they did, eventually Berlin would close the border to any more jobless Greeks. Which is a real shame, because it’s so hard to find good gyros in Frankfurt.
Americans are Americans anywhere in America. But despite decades of effort in Brussels on the whole “European Project,” there’s still no such thing as a “European.” If there were, if Europeans were happy to move about like Americans do, then the eurozone might just work.
But so long as Germans are Germans and Greeks are Greeks, then never the twain shall meet. And to pretend otherwise is to court a disaster where the recklessness of one tiny country can risk bringing down an entire continent — as Europe is learning right this very minute. And at $146 billion, that’s one expensive lesson.
So it’s probably necessary that the EU bail out Greece, before the contagion spreads any farther. But the only way to stop the rot once and for all requires something more drastic: amputation. And that means abandoning the euro, in as orderly a fashion as is possible.
It’s last call. The party’s over. And it’s long past time for the rowdier guests do the walk of shame back home.