In his recent column on the European crisis Bresser suggests that in the absence of depreciation the Southern countries would be better off by abandoning the euro.
If the Southern countries had their own currencies, the adjustment would be simple: it would be enough to depreciate their currencies in relation to the German currency. Since they have a common currency, the solution is either a concerted discontinuation or the “internal devaluation”, that is, recession, unemployment, and a drop in real wages. It is this policy that is being adopted under the command of Germany, of the European Central Bank and of the IMF.Note that this is very different than the approach emphasized by Holland, Galbraith, and Varoufakis in their Modest Proposal, who argue for increasing public investment.
It is clear that the creation of the euro was a mistake for which European countries are paying dearly. The rational solution is the concerted discontinuation of the euro. Then the European Union will be saved. But for this we need courage in the Southern countries, particularly in their chief country, France, and Germany's willingness to come to an agreement. Neither one seems today available in Europe. The situation of the Eurozone countries reminds me greatly of the Argentinian situation and its “plan de convertibilidad”. A huge crisis was necessary to untie the peso from the dollar. Now we are seeing the euro of the Southern countries tied to the “German euro” and, apparently, only a huge crisis could lead the Europeans to get rid of this curse that is the common European currency.
Considering it was the French who initiated the Euro and it is now the peripheral countries who are clinging to it, I find it strange to suggest that an exit from the Euro would be the rational course for said countries to follow. All these countries had flexible exchange rates before the Euro and most were more than glad be rid of them. And while one can cogently argue that the old order had its merits, such as being generally more stable, it is precisely the slow cooking of stable decline relative to the north that the the citizens of these countries hoped to escape with the Euro. Exiting the Euro will do nothing to achieve that goal.
ReplyDeleteOliver: Was there relative decline of the periphery before the adoption of the euro?!?
ReplyDeleteOrdinary citizens were not genuinely asked about the euro. So I find it doubtfull to speculate about what they hoped to gain from it.
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