Comment by VLM | Hacker News Reader

Comment by VLM | Hacker News Reader

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Europe can financially afford Greece defaulting. Can't afford Spain and other markets. So an example has to be made of the Greek people, before other countries get any bright ideas. Its going to really suck for them.

This is a long, old crisis, many years. There is a famous graph I can't find (the world needs a graph search startup?) of the future promises of post-austerity growth vs actual results and the separation is staggering, like 30+ percent difference between promises and reality. Given the trends during the crisis the article seems to miss the point that trying year number eight, or whatever it'll be exactly, of even more austerity absolutely guarantees Golden Dawn taking over, despite that being a claimed result solely of grexit. Obviously continuing with the failed BAU strategies is a total non-starter. It is also possible that trying "anything else", which is finally a political necessity, will somehow make things even worse.

The fundamental problem is you can't have a partial union. Everything else, the root cause of the crisis, the attempts to fix it, the politics, all follow from that fundamental problem.

This may be the chart you're thinking of:

http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/

>The fundamental problem is you can't have a partial union.

I imagine you're talking about the monetary union, because it is of course possible to have partial unions in the EU (many EU countries are not in the Eurozone, and many non-EU countries are in the EEA or in the Schenghen zone, enabling free trade and free movement of their citizens in and out of the other Schenghen countries).

But even in a monetary union, you can absolutely have a common currency without a common fiscal policy. A currency is just a measure of account, a medium of exchange and a store of wealth. We've had centuries of common currency in the form of gold equivalence (i.e. a hard gold standard). The moments we got into trouble with gold currencies are not inherent in the gold standard itself, but in the attempts by sovereigns to jiggle around with it (seigneurage, mixing gold with other metals, creating pretend gold-standards that allow them to create more paper currency than there is gold backing it up, etc.)

"The fundamental problem is you can't have a partial union."

You can have a partial union. That's what EU members who aren't part of the Eurozone have. Greece defaulting will be damaging for its trade prospects, but they don't need to leave the EU to recover.

I think your parent is referring to a monetary union. As in: you can't have a monetary union without a fiscal union.

Err kind of. I phrased my claim poorly. Something more like if you have a partial union it'll be less stable than the alternative, more human suffering, etc.

Look at the origin of the crisis, the union is simultaneously strong enough for international debt to be accumulated, but too weak to control the situation to keep the accumulation to survivable levels and too weak to keep humanitarian services operating regardless of financial market issues. A weaker (no?) union would have never accumulated the debt due to lack of procedure or trust, a stronger union would have regulated the loans and cut off the flow before Greece committed debt suicide years and years ago.

Or look at midgame. The weak union had to decide if it should make German banks suffer or the Greek people suffer, the union was strong enough for them to enforce their decision, at least for several years... A weaker union would still have decided for the banks but the Greeks would have told them to pound sand and this would have been water under the bridge years and years ago. A stronger union would have sent in the tanks and troops and taken it out of their hide, pretty rough stuff but it would have all been over years ago and we'd be talking about the recovery that started years ago etc. The weak union doesn't really have any idea what to do.

Looking at the endgame, a weak union has the possibility of creating a generational depression instead of getting it over with quickly like either alternative, basically the midgame argument but emphasizing the length of the crisis, like a weak union is optimally designed to maximize human suffering.

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