Germany Should Exit the Euro

Red Jahncke posits that it should be Germany, and not Greece, that should exit the euro. The stance is controversial, but here is his logic:

A Greek exit from the currency union would make the situation even worse. There is no mechanism to decide, or deal with, whichever nation might be next, and even that presumes that exits could be managed. The more terrifying prospect is that the other afflicted countries might exit in an uncontrollable panic, complete with bank runs, failures and general disarray. The accompanying repudiation of hundreds of billions of euros in debt would overstrain the European financial system, even Germany’s. The global economy would be paralyzed as everyone wondered which domino would be next to fall.

What, then, might a German exit do? With integration and multiple restructurings so unlikely and withdrawal of the weak members so fraught, it might actually be the best of all available options.

A single, powerful nation would have the best shot at executing a relatively swift exit that would be over before anyone could panic. No agonizing over who exits and who doesn’t. Stripped of its German export powerhouse, the euro would depreciate sharply, but would not become a virtually worthless currency, as, for example, any re-issued Greek drachma surely would. With the euro devalued, a Greek exit and devaluation would be relatively pointless. So, no contagion or bank runs. With new exchange rates making all the non-euro financial havens prohibitively expensive, and with the threat of forced conversion into devalued national currencies removed, depositors in southern Europe would lose their impetus to run.

Additionally,

Germany’s exit would provide immediate benefits to all the remaining euro-area nations. The currency depreciation would radically improve their trade competitiveness — exactly what many observers have said the weaker nations in the south need most. The euro area’s balance of payments would improve, providing sorely needed funds to service its external debt. The benefits would accrue to the euro area as a whole, as opposed to serial exits at the weak end of the spectrum, which would crush one weak nation after another, with each exit increasing pressure on the next candidate.

Read the rest of the piece here.

The United States of Europe

Niall Ferguson, author of the excellent The Ascent of Money (which I highly recommend reading), peers into Europe’s future and sees Greek gardeners, German sunbathers—and a new fiscal union. Welcome to the other United States…in 2021:

Life is still far from easy in the peripheral states of the United States of Europe (as the euro zone is now known). Unemployment in Greece, Italy, Portugal and Spain has soared to 20%. But the creation of a new system of fiscal federalism in 2012 has ensured a steady stream of funds from the north European core.

Like East Germans before them, South Europeans have grown accustomed to this trade-off. With a fifth of their region’s population over 65 and a fifth unemployed, people have time to enjoy the good things in life. And there are plenty of euros to be made in this gray economy, working as maids or gardeners for the Germans, all of whom now have their second homes in the sunny south.

The U.S.E. has actually gained some members. Lithuania and Latvia stuck to their plan of joining the euro, following the example of their neighbor Estonia. Poland, under the dynamic leadership of former Foreign Minister Radek Sikorski, did the same. These new countries are the poster children of the new Europe, attracting German investment with their flat taxes and relatively low wages.

But other countries have left.David Cameron—now beginning his fourth term as British prime minister—thanks his lucky stars that, reluctantly yielding to pressure from the Euroskeptics in his own party, he decided to risk a referendum on EU membership. His Liberal Democrat coalition partners committed political suicide by joining Labour’s disastrous “Yeah to Europe” campaign.

Egged on by the pugnacious London tabloids, the public voted to leave by a margin of 59% to 41%, and then handed the Tories an absolute majority in the House of Commons. Freed from the red tape of Brussels, England is now the favored destination of Chinese foreign direct investment in Europe. And rich Chinese love their Chelsea apartments, not to mention their splendid Scottish shooting estates.

If for nothing else, read the piece to find out who Ferguson thinks won the 2012 Presidential Election in the United States.

Europe and the Elephant in the Room

Today’s quote of the day comes from John Lanchester, about the European debt crisis:

The difference between a safe euro and a euro on the verge of failure is the difference between that metaphorical elephant in the room, which you can ignore, and an actual elephant in the room with you, right now, filling the air with its hot, dank breath. That situation would be unignorable, and the source of a rising panic. The euro zone is already in the room with that elephant; unless some decisive steps are quickly taken, the rest of the world will soon be joining it.

More here.

Readings: Beyond the Breathalyzer, Guerrilla Girls, Greek Default, Like Culture

Some interesting reads from across the web:

(1) “Beyond the Breathalyzer” [New York Times] – I thought that science was progressing in tracking genetic markings via blood samples, but there’s this:

Scientists are building sophisticated electronic and chemical sniffers that examine the puffs of exhaled air for telltale signs of cancer, tuberculosis, asthma and other maladies, as well as for radiation exposure.

Amazing.

(2) “Guerrilla Girls: Feminist Masked Avengers” [Washington Post] I had no idea about this guerrilla group, and how under-represented women are in the Metropolitan Museum.

Do women have to be naked to get into the Met. Museum? Less than 3% of the artists in the Modern Art sections are women,” the sign continues, “but 83% of the nudes are female.

(3) “Once Greece Goes…” [London Review of Books] – the piece begins with this heavy sentence and picks up from there:

The economic crisis in Greece is the most consequential thing to have happened in Europe since the Balkan wars.

Notably:

I speak of the Greek default as a sure thing because it is: the markets are pricing Greek government debt as if it has already defaulted. This in itself is a huge deal, because the euro was built on the assumption that no country in it would ever default, and as a result there is no precedent and, more important still, no mechanism for what is about to happen.

The situation in Greece looks grim indeed.

(4) “The Insidious Evils of ‘Like’ Culture” [Wall Street Journal] – this piece is a bit confusing. Does the author want us to like it or not? The author’s conclusions are stuffy: we want to be liked in person, not just online. Still, this contrarian stance is something to think about:

Just as stand-up comedians are trained to be funny by observing which of their lines and expressions are greeted with laughter, so too are our thoughts online molded to conform to popular opinion by these buttons. A status update that is met with no likes (or a clever tweet that isn’t retweeted) becomes the equivalent of a joke met with silence. It must be rethought and rewritten. And so we don’t show our true selves online, but a mask designed to conform to the opinions of those around us.

Your thoughts?