Greece and the Euro – let the market decide

12 February, 2010

There is now a prospect of Germany and other Euro members co-ordinating a bailout of Greece’s finances, supposedly to support (rescue?) the Euro.  I wonder if this is an example of political pride get in the way of sound political economy.

I didn’t see the US Federal Government, much less individual US states, stepping in to bail out California’s finances after they got into a mess.  Where was all the talk about intervention being needed in California so as to protect the US Dollar?

So why not let events take their course in the Eurozone?  Eventually, the cost to Greece of raising new debt would become sufficiently high that it would be forced by the market into massive expenditure cuts, just like California. The standard of living in Greece would fall to what is justified by their national output. Just think West Virginia.

I don’t think German taxpayers should permanently subsidise the standard of living of badly-managed Eurozone countries, at least not to any great extent.

If you say to me that expenditure cuts couldn’t happen in Greece because there would be civil unrest and political collapse, then I suggest that it would be better if Greece were not in the Euro zone in the first place.

I don’t think the above is special to Greece, by the way – it applies to any PIGS member. (Is Ireland still a PIGS member?)

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