Friday, April 30, 2010

Greeks Bearing Gifts

Greece as the Trojan horse of the Euro is symbolism of the highest and most appealing kind. Appealing in an artistic sense as the Greek crisis may kill the Euro stone dead and that fear is starting to be expressed publicly. The Euro has only been around ten years and was touted as the glue that would bind Europe together, as the currency that would give the US dollar a run for it's money, as it were, in the field of international finance. Now the Euro is being torn apart by lack of flexibility and increasing government debt within the Euro-zone. The problem has been that the requirements for entry into the highly desirable unified currency system were that countries carry only three percent of gross domestic product in debt. Several countries fudged the numbers including Greece which "sold" debt to Goldman Sachs to hide it's existence. The election of the new Socialist government exposed the lie and since then all hell has broken loose.

The problem is that the creators of the Euro forgot to include a mechanism within the system to favor loans for countries facing bankruptcy and now the bankers of the Euro have no idea how to save Greece. Germany holds all the cards and is making noises about letting Greece go down, perhaps as a way to weaken the euro and create a better export market. In any event this crisis is expected to be followed by others in other Euro-zone countries and the question of how to save them is becoming more and more complex and urgent.

The trans Atlantic fiasco makes the US look good by comparison and pushes back the day the dollar might lose universal supremacy. But whatever else it does the euro crisis doesn't solve the debt problems in the US, which with a comparatively stronger currency now has a harder time exporting against countries using the feeble Euro. Greece's gift may be a return to individual currencies, which would be welcomed by a few of the residents of the zone, no doubt, but as a Trojan Horse the downgrading of Greece's debt to junk status might have unplanned consequences even in the US. I wonder if they will have to go back to drachma to inflate their way out of debt.

3 comments:

Milton's Freeman said...

The U.S. electorates "right to free (fill in the blank)" paid for by the sweat of the employed is starting to reap predictable results (see: http://www.nytimes.com/2010/04/26/us/26expat.html)

When will the socialists understand that the gov't can only "give" what it "takes" from others.. and others can get up and leave? The dollar is racing the Euro to become a footnote in economic history.

Bryce said...

So, how do countries become "united?" Have a common currency common to each country.
Somehow the idea is good, the execution not.

ideally each country should have their own independent monetary system. They may call a dollar a dollar but the dollar in this country is not the same dollar in that country.

Greece can fold on its pivot grounds, the other currencies not connected with Greece could exist on their own.

Problem is in order to trade between nations, currencies get mixed with other currencies and that end result is interesting. Will the Euro fail?

Maybe but will the Greek government fail with the currency?

We may only wait and see.

Conchscooter said...

I find it hard to imagine the Euro, and effectively the EU with it, could come unravelled altoegther. perhaps that is my lack of imagination.