There is much noise nowadays about the Greek debt. Ferdinand Fichtner, a German economist, was one amongst many who argued for letting Greece default. I tend to support that idea but I will restrict myself here to just some thoughts about the problems:
- We should recognize that the budget limitations for the eurozone countries (the 3% rule) are a bad idea. They would be a very nice idea if they worked but in reality they are an incentive for countries to cook the books so that their debts become invisible for everyone except a few specialists. If the Greek debts had been open and clear for everyone both concerned Greeks and the foreign lenders to Greece would have become alarmed and the problem would have been noticed much earlier as it was now.
- In general it is a good idea to attack a problem as soon as possible. Japan's lost decade is generally seen as the consequence of not accepting the consequences of the collapse of the property bubble around 1990. Many companies that were de facto insolvent stayed around and they became a drag on the economy. After the crisis of 2008 the US was rigorous in accepting the losses out of fear of a "lost decade" but Europe has been much more hesitant and as a consequence it is believed that there are still much more problematic loans that keep poisoning the system.
This brings me to Greece. One has to be honest about whether Greece really will be able to repay its debts. If you think it is not - as the markets do - it is better to default today than tomorrow.
- The behavior Greece is showing now is typical of a country that no longer believes in a solution. All the discussion is about the pain and no one talks about the benefits of getting the finances back on track. With this attitude Greece may stay a problem case for a long time. You can't force a country towards a solution in which it doesn't believe and that may very well be impossible.
- Probable a default will have to be accompanied by an exit from the euro. This will be painful for many Greeks who have debts. But most of those debts are secured against properties that can be expected to keep their value in euro's. Of course it will be still painful for those people who have to pay off their debs from a reduced wage. It is quite similar to what the people in much of Eastern Europe and the Balkan experienced when their currency suddenly plummeted and it became much harder to repay their euro debts.
The reason why Greece might have to leave the euro is because its competitive position is so bad. While Ireland has nowadays an export surplus and might stay in the eurozone even if it defaulted it is dubious whether Greece can regain a competitive position without a default.
- the strategy of the europhiles is "double or quit" and they keep doubling out fear about the consequences of quitting. I think it is a stupid strategy. Greece quitting the euro won't do much to hamper European unity. The common interests that drive us towards more unity are simply too large. On the other hand might it very well be that the price of keeping Greece inside the eurozone becomes so high that it does serious harm both to the countries involved and to the process towards European unity.
I have never liked the obligation for new EU members to use the euro as soon as possible. Countries should first spend 20 or 30 years inside the EU and have found some balance before they enter the eurozone. So I would be happy if that rule disappeared as a consequence of the crisis. The eurozone has been an area of slow growth for the last decade so I don't see any reason to hurry its expansion.
In my opinion Brussels is paying too much attention to symbols like the euro and too little attention to the economic integration of Europe's periphery - the Balkan, the former Soviet Union, Turkey and the Southern Mediterranean. Whether all these areas will ever be part of the EU is unclear, but the dynamics towards one economic zone are obvious.
In my opinion Europe should strive for a circle of countries around it that have tied their coins to the euro but have not adopted the euro itself, much like the "snake" that connected Europe's coins before the euro. With such a loose connection countries can always devalue if the need arises - as is now clearly the case with Greece.