I vividly remember taking a class on terrorism in college, in which the professor memorably pointed out, as we were knee deep in debate over The Troubles, "None of you are asking the obvious question: Why the heck do the British want to stay in Northern Ireland? Guinness?"
My family hails, a long time back, from bandit country in Northern Ireland, and the question was at first incomprehensible. At the time, Northern Ireland seemed like the most valuable piece of real estate on the planet--emotionally, at least. And yet, my professor was right. It wasn't really adding much to the economic and political life of Great Britain except a big headache.
This is sort of the question I had this weekend, watching this gigantic new bailout effort unfold. I understand the tactical and even the strategic value of each individual move. But the goal of all of this eludes me. Is the euro really so marvelous that it must be saved at all costs? How much do France, Germany, etc really get out of Greek euro membership?
After all, it isn't Greek's commitment to the euro, per se, that is driving its debt yields down this week. It's the apparently open-ended promise that the European Central Bank will monetize however much debt Greece cares to borrow, and that if this fails anyway, the other countries will bail Greece out. Maybe this doesn't matter so much for Greece, which is relatively small. But monetizing the debt will have big consequences if you add Spain or Italy to the list of countries on ECB life support. The fiscal cost of helping the bigger countries out will also, obviously, be horrendous.
In return for which, the northern Europeans get . . . more expensive vacations in Athens and Madrid?
Of course, it keeps their own banks from declaring bankruptcy over emerging market bonds. But I'm not sure that bailing out those banks would cost more than making these kinds of commitments to countries on the periphery; indeed, those commitments may simply cause the peripheral solvency problem to get bigger, because creditors will be willing to loan more money . . . right up until the guarantees become untenable.
I'm glad, of course, that Greece is not triggering a second round of global financial crisis. But this doesn't solve any of the core problems that Greece has, which are:
- A monetary policy wildly unsuited to its economy
- A rapidly aging population which expects to be taken care of by fewer-and-fewer young people
- A massive tax compliance problem
- Government employees who think that their jobs and benefits are not merely a good thing for them to have, but something akin to a natural right
- A long history of fiscal shenanigans
The austerity package solves only one of these problems; the rest remain. And will get worse in the coming years. Maybe the bailouts are enough to make up for the monetary problem. But I still don't see what the rest of the euro zone is getting out of it.
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