Charles Edison

"Economics, politics, and personalities are often inseparable." - Charles Edison

Wednesday, February 22, 2012

'Greece Can Only Solve Its Crisis if It Quits the Euro'

If you are even slightly interested with the economic crisis in Greece, read this article.

If you are considerate about the nearby future, read this article.

If you need a little push, click here.

One of my favorite points that Sinn makes in his interview:

Greece's creditors aren't entitled to have the debt repaid by the international community. Everyone has to earn the standard of living themselves, and those who chose to make money from risk must bear that risk.

If I understand interest-bearing loans correctly, don't interest rates encode the risk of default? The idea that a creditor may lend money with trailing interest rates and recollect irregardless of the debtor's ability to pay is irritable. That is the entire notion of risk! Likewise, interest represents the opportunity cost of not investing elsewhere. Why is there an obligation to pay debts that cannot be managed? An entire country turning to austerity mirrors a system of debt bondage, just on a much larger scale. While, yes, the ability to pardon debt too easily could limit growth by turning away investors, a balanced between the creditors and the debtors. I should not be able to go to input debtor into a thesaurus website and see it paired with "delinquent."

Further, what are the negatives to this? What is to become of home mortgages that are held by the Euro? And what of the middle class? They will likely be affected most by the currency shift, and their savings may be exhausted, but what of the austerity period Sinn is predicting? There is also a decent chance that a proportion of the middle class will simply emigrate in search of better opportunities. What shall serve as the backbone of economic revitalization without the pivotal middle class?


kern said...

What would you advice Europe to do if you were there economic adviser?

Smith said...

Would Greece voluntarily opt out of the euro and would Europe allow it?

Alex D. said...

The suggestion discussed by Mr. Sinn is a bit... precocious? Radical? Abandoning the Euro in exchange for the traditional Grecian currency, the drachma, is an end-game strategy.

If I was an EU adviser, my blog topic would be my suggestion. That is, in my novice opinion, one of the better suggestions to repair the crisis. That being said, I have not researched this topic to the extent a professional would... Not even close. I cannot see all the angles, I cannot foresee the shadowy consequences. I do not know of the the curtained operations and backroom dealing, the banking systems's puppetry, or the the existence of any of these factors. With my limited knowledge, Sinn's proposal seems to be valid, acceptable, and pioneering.

However, I see the unlikeliness of the plan coming to fruition. I would not be surprised if a decent proportion of Greeks are proponents for the reinstatement of the drachma. Given their fluctuating attitudes towards the international community and the aid they're receiving, it's unknown how they would react to the plan. Some may denounce it by bringing up the billions of euros already given to reduce the Grecian deficit, and highlighting the Greek abandonment of the Euro as highly selfish and inconsiderate. Others could see the drachma as the best option for the people of Greece to have a stable economic... and consequently, political, future.

No, Europe would not allow this. States do not secede without conflict. Countries cannot depart from a widespread currency without international uproar. Sinn's proposal is not viable only because of the intertwined paths of politics and economics; from a blind, fiscal position, this seems reasonable.