Drachma or Deutschmark?
Looks like the Euro Zone has more debate ahead of it. A meeting of country leaders in Brussels yesterday failed to deliver any consensus on what to do about a currency union that is becoming more dysfunctional by the day, according to a story in today’s New York Times.
Greece might abandon the currency union and then? Spain, Italy, Ireland, Portugal are all on the firing line with plenty of disruption for the global economy and perhaps globalization in the process. In watching the debate among the nations it strikes me that no one has elevated (perhaps until yesterday) the discussion to the level it needs to be on to find a solution. All the actors seem to be looking for the lost purse on the proverbial well-lit street even though it was lost elsewhere.
Since the earliest days of the crisis, sensible solutions have been removed from consideration because, regardless of their efficacy, they were unpalatable to some. That left the participants to argue about solutions that were arguably known non-starters that were nevertheless palatable.
Yesterday, France’s new President, Francois Hollande, said the unsayable that the way out of the never-ending crisis is growth, not austerity. Further he said that one approach could be printing EU wide bonds denominated in Euros. The Germans said they were constitutionally prohibited from “assuming other nations’ debts” and so we have what we have.
I know lots of people don’t agree with me and that’s fine (but thanks for reading this). But the record of growing one’s way out of this kind of predicament is well documented just as is the record of failure for using austerity. The acid test for either idea is how well it works, not what your constitution says or what you feel in your gut. This is an issue for science not guts.
It appears to me that the German position, which was once unassailable, is beginning to teeter as Germany has lost the French as allies in austerity and other countries are grumbling. No one has voiced the idea yet but the possibility of a Euro Zone without Greece is becoming only a bit more likely than a Euro Zone without Germany.
Bonds, growth and stimulus would do a world of good for the rest of Europe and while Germany would be missed, it is no longer inconceivable that the deutschmark could re-emerge as an alternative to the rebirth of the drachma.