LSE economic historian Albrecht Ritschl and TIMES columnist Oliver Kamm have both made the case for a Greek bailout. In a SPIEGEL interview, Ritschl points to the fact that restructuring the debt of a bankrupt country can be the basis of a successful restart and a more prosperous future. According to Ritschl, no country exemplifies this better than Germany, whose fast post-war recovery was buttressed by generous US aid programs, debt relief and the putting-on-hold of reparation payments to countries who had fallen victim to German occupation (that includes Greece). Similarly, Oliver Kamm recalls that Germany’s export-oriented economy has been one of the big beneficiaries of the single currency. Kamm notes that a Greek exit from the Eurozone could trigger a domino effect that could eventually lead to the dismantling of the Euro. Compared to this scenario a new Greece bailout package would incur only minor costs.
Both points are, I think, important. If the bankruptcy of a member state of a currency union is not answered with aid programs and debt relief, the only real options left are debt default and eventually monetary reform followed by a massive devaluation of the new currency. This, however, would have disastrous consequences to the monetary union’s remaining countries, especially to those also suffering from severe structural debt problems. As these countries will find it increasingly difficult to finance themselves through the capital markets, exiting the union will look more and more like an attractive option. Step by step, this will lead to the union’s erosion.
The current eurozone debt crisis reveals once more that EU policy makers are caught in an “elitism trap”. European finance minister must be aware of the dire ramifications of further delay on the Greece issue, yet they keep playing tactical games in order to appease the angry man in the street. And who can blame them? When doing the right thing is bound to trigger an electoral backlash caused by irrational popular sensitivities (some two thirds of German voters oppose financial aid to Greece), doing nothing until the issue gets out of the media spotlight must seem like an attractive option. If anything has ever presented a convincing case for a European Monetary Fund (i.e. an institution that can react adequately to sovereign default without having to fear being voted out of office), the Greek tragedy certainly did!
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