Tuesday, May 11, 2010

Would Germany be better off now if it were on the pound rather than the euro?

I don't really feel very qualified to talk about European monetary and macroeconomics, which is why for the most part I've avoided writing about Greece and the Eurozone's crisis, but – and maybe it's just the benzos – I feel like I have something slightly relevant to say.

First of all, Tyler Cowen has a great round-up of recent events and indicators (although I hate his first point) here. Additionally, I hear that even Paul Krugman – someone who, sometime during his transition from serious economist to columnist, turned into a man who never met a bailout he didn't like – thinks Greece is going to be dropped from the euro. (Although later in the article he seems overjoyed at the fact that a Greece back on the drachma would be able to destroy the currency to its heart's content.)

As far as I can gather, the consensus among economists is that debt restructuring (in Krugman's words, "a polite term for partial default") is certain, a more serious default is likely, and Greece leaving the eurozone – an that was seen as very fringe a few weeks ago – is now a distinct possibility. In the end, I think that the quicker Greece leaves the euro, the better. Many in Europe worry about the resultant instability won't be worth the risk – after all, even Greek dogs like to riot. But in the end, Greeks have become too accustomed to capitalism and liberal democracy, and once its leftist protestors no longer have the euro and lack of monetary and fiscal sovereignty to blame, the rioting will stop and the hard reforms will begin. Greek voters are too sophisticated to give into geography and regress to the level of its Balkan neighbors, who despite Greece's problems, they still make it look like Switzerland in comparison.

The big European monetary debate has always been whether the UK and Scandinavia should give up their pounds and crowns in favor of the euro. But it now looks like it would have been better for Germany, the Benelux, and Scandinavia to give up their marks, francs, guilders, and crowns in favor of the pound sterling.

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