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I think we are agreed on one thing: you cannot have a stable currency Union where some countries are in permanent surplus and others are in permanent deficit.  You either have to address the structural imbalances, or one or other have to leave. The argument for the deficit countries to leave is that devaluations are less painful than internal deflationary policies. Probably the simpler solution would be for them to kick Germany out by systematically voting against everything Germany wants on the ECB Council. The problem is that none of them have the gumption to do so.

We are also probably agreed that nothing major will happen until the next big financial crisis.  That is because simple arithmetic is beyond the capabilities of our dear leaders and their instincts are to stay put for as long as they possibly can - like the frog in the cauldron of water being gradually heated up to an unsustainable level.

So we will have a continuation of current beggar thy neighbour policies and anaemic growth.  Until the next big bang.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Aug 26th, 2016 at 10:27:47 PM EST
[ Parent ]
I suppose that, in the event, it is conceivable that Greece and Italy, or possibly just Greece with Cyprus and Malta could form a SEURO currency union in the days following a collapse. Were they to do so there is a chance the events I describe could unfold. Or, perhaps everyone will just want chaos and destruction. Few people have ever lost money betting on the social incompetence of our species.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 27th, 2016 at 04:09:30 AM EST
[ Parent ]
Malta is probably more likely to join Sterling than a Seuro based on trading patterns. Most trade in Europe is North South, not east west.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Aug 27th, 2016 at 12:04:35 PM EST
[ Parent ]
At least they would have a potential refuge that suited their needs.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 27th, 2016 at 11:07:06 PM EST
[ Parent ]
Why would Greece and Italy, or Greece and Cyprus and Malta be better off with a currency union than all alone?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Aug 28th, 2016 at 01:57:39 PM EST
[ Parent ]
Combined, their currency and economy would have greater weight and be less susceptible to gaming by hedge funds. Joining the Asian Clearing Union would have other advantages than just being able to clear payments without interference by the BIS, etc. It also would offer opportunities for investment in a SEURO zone by all members of the ACU, not least because of the signal it would send about alignment, which, itself, likely would have a paralyzing effect on other members of the EMU, NATO and creditor nations.

Another large effect would be the very existence and the policies of a SEURO Monetary Union. The SEURO would almost certainly be devaluated with respect to the EURO and fiscal policies would be more favorable to growth in the SEURO economies. This would improve the terms of trade for existing northern trade partners while creating new markets in states party to the ACU.

But, presuming this was done in conjunction with a financial collapse in the EU, it would provide a refuge for other EU trade deficit nations wanting a safe harbor for their own currency and monetary policies favorable to their own needs.

But the biggest effect might well be on the perceptions of German leaders. They would be faced with the danger of having numerous trade deficit members of the EU joining the SEURO and of the EMU being reduced to a union containing mostly trade surplus countries and Germany would rightly be concerned about where that would lead. As Frank has noted, there is much that Germany could do to change its relations with Greece and Italy.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Aug 28th, 2016 at 03:04:28 PM EST
[ Parent ]
But you are proposing to join countries of very unequal sizes. Greece would dominate a Greece - Cyprus - Malta union, and Italy would dominate an Italy - Greece union. Politically, that is unsustainable.

And Cyprus and Malta are only in the EU as a sop to the UK to compensate the addition of Germany's sphere of influence in 2004.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Aug 28th, 2016 at 03:29:00 PM EST
[ Parent ]
I think - and I've said this before, that everyone is massively overestimating the difficulty of the problem.

In order to balance the european economy,
Germany needs higher wages and higher consumption. Germany has the productivity to back those up, so they can afford it.

It bloody well has to be possible to get popular backing in Germany for a policy of "Germans should be paid more money and have more fun for the greater good". Seriously. How is that not the easiest political message in history to sell?

So basically, what is required is simply that the arguments of Keynes be translated into German and circulated in venues where Germans will actually read them.

by Thomas on Sat Aug 27th, 2016 at 06:24:24 AM EST
[ Parent ]
Persuade Germans to be frivolous and have fun?  That is a hard sell!

But I agree, that is by far the easiest solution.  Greek holidays for all funded by the German Government!  Greek retirement homes for German retirees funded by the German Government - cheaper than keeping retirees in Germany - so it can actually be sold as a thrifty policy. A European health care policy where equivalent  treatment is provided in country of residence not country of origin.  (Already applies to emergency healthcare interventions, but extended to specialist and after-care).  Allows the Greek health care industry to modernise and expand funded by the German taxpayer.

It doesn't take much imagination to make this happen, and all can be sold as a net benefit to Germans as well.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Aug 27th, 2016 at 12:15:07 PM EST
[ Parent ]
Germany's Drag - The New York Times
So Germany's fiscal obsession has a sort of multiplier effect on Europe, and indirectly on the world, that is disproportionate even to Germany's economic size. And this makes me wonder whether all the sea-change in elite opinion that we've seen will do much good, since the government that most needs to change its policies isn't listening.


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Aug 27th, 2016 at 12:45:53 PM EST
[ Parent ]
Excellent suggestion, Frank! How many Germans would prefer to retire in a warmer climate where the cost of living is lower and where their very presence would be aiding the Greeks? Most will have relatives still working in Germany so they can visit Germany for Christmas and New Year or whenever they wish and luxuriate in the warmth of the Aegean or the Adriatic for most of the year. Cyprus might want some of that action as well.

The problem with implementation is simply the ability to penetrate the minds of German leaders and voters. How might that come about?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 27th, 2016 at 11:20:30 PM EST
[ Parent ]
"But that would be socialism!"  And it appears Europe has become as imbecilic over that shibboleth of idiocy as the US always has been, with a German brass band leading the parade.
by rifek on Tue Aug 30th, 2016 at 02:03:12 PM EST
[ Parent ]
But how does it help the German hereditary oligarchs retain their dominant position?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 30th, 2016 at 05:23:23 PM EST
[ Parent ]
The German hereditary oligarchs will probably own most of the hotels and retirement homes in Greece... so the benefits to Greece will be limited to increased employment and tax revenues.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Aug 30th, 2016 at 06:43:46 PM EST
[ Parent ]
So by creating a foreign absentee landlord class.

I can see no way that could possibly go wrong.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 30th, 2016 at 06:59:40 PM EST
[ Parent ]

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