Comments on Eurozone Solutions
By Arnold Kling
When it comes to debt, the periphery countries simply don’t want to pay up. Their national wealth is many times their gdp and thus much much greater than their debts, even for Greece. It’s amazing how many people won’t come out and utter or recognize this simple truth.
He is arguing from the German point of view. I would add that Germans should give a Don Boudreaux response to the complaints that Germany has benefited unfairly from its membership in the euro due to its ability to rack up trade surpluses at a fixed exchange rate. Boudreaux would say that a trade surplus is a boon to other countries, not a theft from them. Who gets to consume more, after all?
Anyway, it is interesting that one solution is simply to have the debtor countries sell assets to pay up. As someone once said, “They hired the money, didn’t they?”
Incidentally, at this dinner, Richard Miniter suggested that the U.S. government has a lot of land in its possession that it could sell in order to pay off our debt.
One solution I keep hearing is that the Eurozone needs a tighter fiscal union. I hear that as a transfer of power away from democratic governments and toward eurocrats, so that my inclination is to be opposed. Incidentally, the analogy with the U.S. transition from the Articles to Confederation to the Constitution is not quite the trump card that some folks think. There are libertarians who view that transition as a step backwards.
I keep coming back to my analogy of the banks and the governments as two drunks trying to prop each other up. The governments are allowed to run unsustainable budgets because the banks are willing to lend to them. The banks are willing to lend to them because they expect to be bailed out if anything goes wrong. After all, the capital regulations tell the banks that it is ok to treat sovereign debt as risk free, so don’t the regulators have an obligation to bail out banks that follow the regulations?
The solution that I want to see is one which does not perpetuate the two-drunks syndrome. That might mean that both drunks have to suffer. The governments will lose access to credit, and the banks will go through bankruptcy.