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In so many words, Greece (as an EU member state) lacks monetary sovereignty and must run its finances like a private entity because the ECB will not monetize its debt (by EU treaty prohibition and ideological opposition).

For the past 30 years politicians of the right have been using the idea of running the state like a private firm, but it mostly hasn't worked with the voters. It also was an economic fantasy. However, at least in the EU the institutional structures have been reformed in the direction dictated by Neoclassical economics and neoliberalism, resulting in a system in which operating according to the Austrian economic fantasies is the only legal possibility. This doesn't mean that macroeconomically this is less nonsensical than it ever was, but we have now managed to write this nonsense into the rules of the game whereas before it was all politics.

Now, one thing this means is that the state is in no position to provide any guarantees. Something like the restructuring of General Motors is not possible in the Eurozone (or no sensible government should attempt it, given the fiscal and monetary constraints under which it now operates). Also, bank guarantees are criminally reckless, and I have my doubts about deposit guarantees without an actual fund backing them.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sat Apr 16th, 2011 at 06:55:29 AM EST
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