Megan McArdle sums up Greece:
Greece’s problem is easy to state: austerity is horrible, a fixed exchange rate makes their economy uncompetitive, and the interaction of those two things promises a lot of misery for a long time. They want someone else to share some of their real and very deep pain.
The Troika’s problem is also fairly easy to state, in three words: Spain, Portugal, Italy.
These countries also have a bit of a debt problem, and the euro is not doing any favors for their economic competitiveness. They are much bigger than Greece. While a Greek default and exit from the euro probably won’t do much damage to the euro zone’s financial stability, a similar move from other PIIGS would present a considerably larger problem. And if Greece gets a fantastic deal from its creditors, then the Troika is quite reasonably afraid that those countries are going to start asking why they’re the suckers.
And you don’t have to guess what happens from there.
Look, it doesn’t take a cynic to see what really lay behind the establishment of the euro. The pro-euro side talked about things like reducing the trade costs incurred by currency exchanges, even though those costs never amounted to very much. They liked to tell us how much easier things would be for tourists traveling from one end of the Continent to the other, without the bother of a passport or having to trade francs for drachma along the way. There would be peace and harmony along the road to establishing a sort of United State of Europe to rival, gently, the United States of America.
That was the public face of the European Project.
Behind the scenes, the Greeks, Italians, Spaniards, and others were hoping to get easy access to cheap German credit — kind of like a ne’er-do-well neighbor being allowed to use your credit rating to secure his home loan. The Germans thought they’d get captive export markets in southern Europe, where the locals would no longer be able to inflate their way every few years back into competitiveness with German firms. The Scandinavian countries had the same goals as Germany, only smaller. The French thought… well, nobody ever knows quite what the French are really thinking, other than how to get somebody else to pay them for being so delightfully French. Other countries went along for the ride because they didn’t think they could afford to be left out, that the eurozone might become resistant to non-euro trade.
The heights of cynicism along the road to the European Project were breathtaking.
(Britain stepped aside from the eurozone only because of the wisdom and grit of Margaret Thatcher, who is widely hated in the UK for both. I suspect many even in Labour are thanking her today for both, albeit silently.)
But now Germany’s captive customers can’t afford many German goods any more — and in Greece they don’t even have enough cash for next week’s groceries. Behind the Greece of course lies an entire tier of second-rank economies poised to follow.
What’s left then? There’s no telling, but maybe the European Union could step back from the utopian folly behind the eurozone, and get back to the serious and practical business of establishing a continental free trade zone.