In my ongoing debate with Yanis Varoufakis, he writes in a new post (I had criticised him for implying that Germany sought retribution against Greece):
I beg to differ. While my 1st Principle bans me from generalisation, this ban cuts both ways: if Germany’s view is not monolithic it can neither be said to seek retribution (against Greece) nor not to seek it! Nonetheless, it is perfectly legitimate to perform the following mental experiment: Suppose that there were a button that the German Chancellor could press to make the Greek debt and the Greek current account deficit go away without any pain for the Greek people. Would a majority of German voters want Mrs Merkel to press it? Or would they prefer a significantly less efficient outcome (in terms of combating the Greek crisis) which is accompanied by significant hardship for the Greeks?
I have no doubt that both the German public and a large majority of German policy makers would opt for the latter; motivated by a mixture of (a) an urge to see that the Greeks are ‘taught’ a lesson (retribution) and (b) a view that such pain is important to deter the spendthrift Greeks (and assorted Peripherals) from repeating their ‘sins’ in the future. In this sense, my statement that Germany seeking ‘retribution’ was a prime mover behind the Greek Bailout package is utterly legitimate.
I am shocked! First of all, the thought experiment is not “legitimate” but a fairy tale-like utopia, in which a painless fix for this crisis exists. Of course, such a fix does not exist, and I will elaborate below.
Second, even if it were a legitimate thought experiment – and the German public believed that such a painless option exists (otherwise the thought experiment is bogus, obviously) – the German public would not choose to teach anyone a lesson. I cannot believe how anyone could argue otherwise. Because here is the thing that people outside Germany constantly miss: the German public just wants to be left alone, and live in friendship with its neighbours, in democracy and freedom, and in prosperity (which excludes transfers to slightly poorer but still rich countries like Greece, Italy etc.). Period. The majority of the German public has zero interest in being the headmaster of anyone, or worse even, to dominate Europe.
Is the euro crisis an easy-to-solve problem? I think it isn’t and never was, but Yanis wrote in his first response to me:
This Crisis was extremely easy to prevent and, once it started, quite easy to arrest. It constitutes a spectacular failure of our politicians. Technically, it was no big deal. We needed to deal swiftly with the banks (by creating a Euro-TARP, and leaving national governments out of the equation), with debt (by having the ECB manage it rationally – as opposed to dumping it, eventually, onto the ECB without any plan and after it had grown inordinately) and with investment (by energising early on the European Investment Bank).
I agree that leaving the banking sector in a zombie status has caused much more damage than is commonly acknowledged. However, in a rigid monetary regime, where price and wage inflation in some parts like Greece or Spain was mostly driven by non-productive government consumption and real estate, where credit expanded rapidly and leaves the public or private sector (or both) deeply in debt, I find it very, very hard to argue that this is easy to solve. Imagine the UK with no central bank to pick up some of the slack, for instance. Does anyone think the UK would be in such a relatively good shape now?
What is more, I think this is a little too sarcastic:
Yes, it is true, there is no evidence of that. Why? Because the Eurozone happens to be the first such experiment in human history. It is like arguing that Apollo 11 ought to have left Earth for the Moon only after we had proof from past experience that we can land men on the Moon.
Naturally, I meant that all we know from rigid monetary regimes (that did exist), from debt-fuelled booms (that did exist), from sovereign debt crises (that did exist) does not support Yanis’ claim that this is or was somehow easy to fix. Especially, if you take these things together, make the monetary regime irreversible and add free capital movement. I am stunned that Yanis repeats that the euro crisis was “dead easy” to arrest. I stick with my assessment: there is nothing in theory or evidence that supports Yanis’ claims.
This is also why his thought experiment above is invalid: if the German public does not believe such a painless option to exist, it cannot choose between such an utopian option and something else that is realistic, but painful for Greece.
Einsortiert unter:Politische Ökonomie Tagged: ECB, English, Euro, Eurozone, Germany, Greece, Yanis Varoufakis