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Achilles' Heel
Money Walks, Politicians Talk
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  • Kevin

    I’m not sure Greek money in Germany will be safe… I can easily see an EU-wide (or at least Euro-wide) agreement in which Greek resident’s EU wide Eoro deposits take a haircut for exactly this reason. The German public will have no sympathy with Greeks trying to get their money out of a hellhole they created when the German taxpayer is on the hook to clean up that mess. Maybe I’m too paranoid, but if I were Greek I would look into moving it to Switzerland or maybe the UK.

    • Curious Mayhem

      Yes, that’s exactly right. It will get even worse if (or when) the new Syriza government imposes capital controls. That will be the first step toward Greece leaving the common currency. They want to stay in the eurozone, but it’s impossible to do that and implement even part of Syriza’s program.

      The best Syriza can manage is to force a renegotiation of past debt and some fiscal aid from the EU while Greece prepares to leave the euro. The latter step is essential to any hope that Greece can save itself. Within the euro, there is no way out of permanent austerity and contraction — it’s an overconstrained system with no solution.

      The analogy with the Great Contraction (1929-33) is exact. Each country left the gold standard, and practically the day that it did, the contraction in that country stopped. Every combattant nation of World War One, after 1918, was on an overvalued currency standard by that point (gold priced too low, or too much money and credit for the fixed stock of gold). Or Argentina pegged to the US dollar in the late 1990s at too favorable a ratio — massive imports, foreign borrowing, lagging exports => massive current account deficits paid for with dollar-denominated debt => imposible situation.

      Currency pegs are fine — Hong King has had one with the US dollar for decades — if the ratio is reasonable and doesn’t promote large imbalances either way. Greece would need a euro at $0.80 or $0.60 — no way Germany would sit still for the massive inflation that would be imported with such a valuation.

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