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You might want to stop thinking in scholarly rules. This isn't the economy 101 exam. We have a political as well as an economic problem here.

The debate was about what Greece would do to restore productivity and/or competitiveness and get a grip on its debt.

Why on earth would Greece, in your opinion, want to go the "New Drachma" way? Even though that is, by all reasonable predictions, incredibly painful?

The only advantages are that Greece could

  • create high inflation in a number of ways
  • print serious amounts of money (which creates high inflation as well).

The only reason to go New Drachma is that it wants one of these badly enough.

As long as Greece actually strives for a hard currency, it could stay in the Euro just as well, default or not.

The nice thing about inflation for politicians is that it is comparatively easy to implement, politically, and that it solves their competition problem.

by cris0 on Sat Feb 18th, 2012 at 10:48:49 AM EST
[ Parent ]
Going to the New Drachma is necessary, but not sufficient, to implement a full employment policy.

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 Carrie (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 11:32:09 AM EST
[ Parent ]
The debate was about what Greece would do to restore productivity and/or competitiveness and get a grip on its debt.

No, that was the debate you wanted to have.

The debate we are actually having is about what the Eurozone should do to counter foreign accounts imbalances.

The debate you wanted to have is about Greece, and Greece alone.

The debate we are actually having is about both Greece and the countries who run a persistent CA surplus against Greece. And the optimal solution to the problem is for them to reduce their surplus - or, to put it in Swabian Housewife Economics terms, to reduce their competitiveness.

Why on earth would Greece, in your opinion, want to go the "New Drachma" way? Even though that is, by all reasonable predictions, incredibly painful?

Because being a German colony is more painful.

If Greece had gone full Argentina two years ago when this manufactured crisis began, it would be out of the woods by now, and the pain would have been considerably less than what it has already experienced, nevermind what attempting to comply with increasingly ridiculous creditor extortion will require.

The only advantages are that Greece could
  • create high inflation in a number of ways
  • print serious amounts of money (which creates high inflation as well).

  • Devalue its currency relative to the €-Mark, thus pushing the unemployment created by Hartz I-IV back to Germany, or to whatever suckers stay in the Eurozone.
  • Reassert sovereign control of its domestic economy.

    (Oh and your second bullet is bullshit - printing money does not create inflation. This is the sort of Swabian Housewife Economics that caused the crisis in the first place.)

    As long as Greece actually strives for a hard currency, it could stay in the Euro just as well, default or not.

    A hard currency confers no benefit to Greece. For that matter, a hard currency confers no benefit to 99 % of Germans either. But the Germans get to vote for their governments, a luxury the Greeks do not enjoy these days.

    - Jake

    Friends come and go. Enemies accumulate.

  • by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 11:33:48 AM EST
    [ Parent ]
    It's not a political problem really, is it? So much as it is a diplomatic problem.

    Relatively soon, Berlin will be fairly well isolated, albeit still (for now) in the center of the EU. In a few short months, Frau Merkel will no longer have diplomatic cover via a partner in Paris.

    What is the end game?

    The Hun is always either at your throat or at your feet. Winston Churchill

    by r------ on Sat Feb 18th, 2012 at 01:06:44 PM EST
    [ Parent ]
    Eurointelligence: A deal that would turn Greece in a eurozone colony (17.02.2012)
    Hollande's top economic advisor prepares entente with Merkel

    In a display of pragmatism Francois Hollande ignores Angela Merkel's support for Nicolas Sarkozy and asks his top economic policy advisor to underline the common ground between the French Socialists and Germany's current government. In an interview with Frankfurter Allgemeine Zeitung, Michel Sapin, a former Socialist finance minister, stressed that Germany was right to insist on budgetary consolidation and that Hollande would be serious about solid public finances. But Sapin stressed growth was needed to achieve that pointing out that you cannot get a country's finances back on track with a growth rate of 0.5% for five years. Sapin also stressed that Hollande would not seek a change of mandate for the ECB because under Mario Draghi the central bank was doing excellent work. This point is noteworthy because the Socialist's programm foresees that the inflation fighting mandate is extendet to growth enhancement.

    Also, Merkel's popularity soars to two-year high (AFP via Google)
    As some European neighbours criticise Merkel's hardline austerity-driven solutions for the sovereign debt crisis, 64 percent of her constituents said they approved of her job performance, according to the poll for ARD television.

    It was her highest share of the electorate since December 2009, three months after she was elected to a second term.

    ...

    Respondents said they admired Merkel as "honest and not seeking her own advantage" (73 percent), for taking "correct and decisive action" in the eurozone crisis (61 percent) and for "not acting like a partisan politician but as someone who is above the fray" (55 percent).

    LOLWUT?
    Eight[y]-five percent appreciated "how she represents our country in the world".


    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 Carrie (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 02:21:44 PM EST
    [ Parent ]

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