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An area with "no fiscal transfers" is an area with trade balances.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Thu Feb 23rd, 2012 at 06:16:58 AM EST
[ Parent ]
Yes. And it doesn't work. So what does that tell us?

Sigh.

by Katrin on Thu Feb 23rd, 2012 at 06:19:58 AM EST
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Maybe it tells us that we need to turn the Eurozone Periphery into a pile of rubble comparable to West Germany ca. 1948, in order to recreate the conditions for the Wirtschaftwunder. Then it will be right and proper for Germany to engage in fiscal transfers like the Marshall Plan.

Oh, and engaging Germany in a war like the US war in Korea in 1950 wouldn't be a bad thing either, since the war drive would increase German demand for periphery products.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Thu Feb 23rd, 2012 at 06:26:55 AM EST
[ Parent ]
That could work, if you find enough militarists in Germany.

The other way is the transfer union. I don't believe in a third option. Even Swabian housewives get sooner or later that breaking up Europe would be even nastier. It will be too late and too little and I have no doubts as to who exactly will have to pay for it, but it will come, because it must.

by Katrin on Thu Feb 23rd, 2012 at 07:38:40 AM EST
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You can break the Euro without breaking the EU.

All that requires is admitting that the Euro was a bad idea from the get-go.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 23rd, 2012 at 08:04:39 AM EST
[ Parent ]
The Euro as executed was a bad idea.
by Colman (colman at eurotrib.com) on Thu Feb 23rd, 2012 at 08:05:55 AM EST
[ Parent ]
The Euro as written was a bad idea.

So bad, in fact, that you can pretty much use it as a rule for how to set up currency unions: Do everything the opposite: Put the limits on state surpluses instead of deficits, put the limits on current account rather than sovereign balances, have parliament control the central bank instead of the other way around. And so on and so forth and etcetera.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 23rd, 2012 at 08:14:27 AM EST
[ Parent ]
In an ideal world there would be enough good will to break the euro in an orderly way. I don't see any good will, so I assume that they will take the easier way, which is keep the euro. But I agree, the thing was a bad idea.
by Katrin on Thu Feb 23rd, 2012 at 10:16:12 AM EST
[ Parent ]
How can you break the Euro in an orderly way with all those Target2 balances building up?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Thu Feb 23rd, 2012 at 11:25:24 AM EST
[ Parent ]
Some sort of haircut probably. With a lawn mower. Irrelevant, though: I don't believe that's the way we are going.
by Katrin on Thu Feb 23rd, 2012 at 11:36:13 AM EST
[ Parent ]
By going Full Argentina and telling the ECBuBaIMF to fuck off and die.

Oh, you meant "orderly" as in "in ways that will not cause systemic insolvencies?"

Three years and a lot of euros late for that.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 23rd, 2012 at 11:48:26 AM EST
[ Parent ]
I mean "orderly" as in not breaking the EU.
by Katrin on Thu Feb 23rd, 2012 at 11:51:13 AM EST
[ Parent ]
Then I fail to see any problem with the Argentina Alternative.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 23rd, 2012 at 03:47:34 PM EST
[ Parent ]
  1. too many hard feelings.
  2. It would lead to two currency blocks, and in between would be France. No good.
I really don't think we need more centrifugal force in the EU.
by Katrin on Thu Feb 23rd, 2012 at 04:21:34 PM EST
[ Parent ]
It would lead to two currency blocks, and in between would be France.

Unless Germany - and by Germany I mean the BundesBank - decides to unconditionally support French membership of the common currency with the full power of the ECB's printing press, France will drop out of the Euro no more than five years after Greece does.

Given the crop of nutcases currently staffing the BuBa, I would not place any expensive bets on that proposition.

I really don't think we need more centrifugal force in the EU.

I find it difficult to imagine that it would be a greater source of centrifugal force for Europe that Eurozone members strategically default and devaluate than it would be to continue to subject them to the whims of the insane asylum that passes for a central bank in the Eurozone.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 24th, 2012 at 09:16:05 AM EST
[ Parent ]
Unless Germany - and by Germany I mean the BundesBank - decides to unconditionally support French membership of the common currency with the full power of the ECB's printing press, France will drop out of the Euro no more than five years after Greece does.

Well, The Bundesbank did exactly that in 1992/3. The buck stopped with France.

But it's not clear they would do it now. The only reason would be that Germany needs France as the useful idiot in the strong currency zone in order to have any chance of convincing the rest thet the strong currency zone is a necessary feature of the EU.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Feb 24th, 2012 at 09:36:25 AM EST
[ Parent ]
1. As opposed to the hard feelings already developed?

I mean, if Greece agreed to subject itself to two years of high-grade IMF treatment rather than default two years ago it was in order to avoid hard feelings. Also, apparently to take Barroso and Bini Smaghi's words at face value, in order to preserve democracy in Greece. See how well that's worked.

2. You mean the current policy path doesn't lead to two currency blocks (or a much diminished Euro bloc serially shedding members) with France a borderline case?

I believe you missed the evolution in real time of my Euro crisis scorecard. We had been predicting an endgame with a small core Euro and France on the boundary for a long time before France fell off the core last August.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Fri Feb 24th, 2012 at 09:33:24 AM EST
[ Parent ]
If we assume that the current policy can be maintained, you are right. It's a policy that too few people benefit from, though (including in Germany). I don't believe it can be maintained for much longer.
by Katrin on Sat Feb 25th, 2012 at 05:32:26 AM EST
[ Parent ]
The question is less whether it can be maintained - it obviously can't - and more how ugly its failure is going to be.

If it's pushed to the point where blood starts flowing in the streets of Athens, we'll be struggling to keep the Union alive, nevermind the Euro.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 25th, 2012 at 05:37:04 AM EST
[ Parent ]
I suspect when that happens the EU Council may just decide to strip Greece of its voting rights according to Article 7 and get on with their business...

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Feb 25th, 2012 at 05:39:20 AM EST
[ Parent ]
It's not only Greece. It would be a coup that would quickly spread to more countries. Do you really see that this can be enforced? I don't.
by Katrin on Sat Feb 25th, 2012 at 06:09:33 AM EST
[ Parent ]
the common currency was half of a good idea.

if the other half (fiscal union) had come first, or at least simultaneously, it would have had a chance to resist world market attacks, as is, it's a pacifist at a massacre.

it was rankly stupid 'blue sky' optimism to think that we could have one sans the other, and now it's a lead zeppelin, because it was symbolic union, not real, as it would have been if both parts had been legislated.

whether this was opportunism or a giant duh will maybe come clearer as wonks wonk out the details, mostly of the cui bono variety!

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Thu Feb 23rd, 2012 at 10:28:02 AM EST
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Migeru:
An area with "no fiscal transfers" is an area with trade balances.

True, but this fails to distinguish between transfers by governmental organizations, (evil taxes), and transfers by private corporations, (virtuous profits). So housewives, especially of executives of companies with trade surpluses, and all who aspire to their wealth and status, find fiscal transfers repugnant - stealing from the virtuous wealthy to give to the feckless poor.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Feb 23rd, 2012 at 10:43:21 AM EST
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