There is no doubt about it that whatever reality has in store for all of us these days is historically unique, so unique that we can be certain that whoever pretends to know how things will play out is flat out lying or is an economic charlatan. Nobody on the planet has ever seen a messy monetary union like the EMU being in the kind of trouble it is today.
Ever since the proverbial shit hit the fan back in September 2008 we have witnessed how a number of banks, financial institutions and entire countries muddled their way through the consequences of systematically built unsound and irresponsible financial positions. We also saw that in the generalized onslaught even those with sound positions had their share of trouble to deal with. We saw how the US stopped the decay by means of a massive fiscal backstop crafted to build a dyke to hold the financial sewage from entering and tearing the social fabric irreparably. China did a comparably good job as well, considering the gravity of the situation, at pumping enough money in the economy to restart it. Europeans on the other hand engaged in a one-upmanship of morality tales and I-told-you-so’s pointing fingers and treating the crisis as the wrath of god against the hubris of the Greek lead European periphery. The dominant morality tale lifted straight out of the economic “vernunft” of a Schwabian hausfrau has it that the mess we are in is due to the European periphery living over their means. While there is no doubt about it that this is indeed so and that the European periphery is guilty of a long history of mismanagement what is also true (but the dominant story suppresses) is that Spain had a housing bubble full of German greed and unvernunft burst on its face and Greece woke up with a hangover from a consumption party thrown by German and French capital. The economy is a bunch of poor bastards trying to make ends meet and there is no morality anywhere within it. As much as I try I fail to see a liability system that holds the European periphery responsible for economic mismanagement without holding the “virtuous” European core responsible for economic recklessness. When the shit hits the fan everybody should get their fair share of the consequences and there is no doubt that while drunk driving is be to contemned the bartender ought to be held liable as well (dramshop law for the markets). It is for that reason that I think it is fair to let the European periphery default on its debt within the Euro zone. I understand it is unorthodox and I understand that this will shake the core of the EMU but this is exactly the point: 1. the moral hazard will not come from letting the European periphery off the hook but from not holding the Franco-German economic recklessness liable. 2. there is no morality in a bunch of heavy weights hiding behind tiny Greece hoping that it will survive long enough to keep the wolves away from themselves. I would like to see Greece leading the way:
1. Greece unilaterally defaults on its debt and lets the Schwabian hausfrau figure out how to sort out the rest: her son was the greedy bartender. At the same time Greece relentlessly reforms itself and builds a properly functioning state capable of collecting taxes and taking care of its own. Greece should let the Europeans and the Germans bring in know-how. It is not a bad thing that the Greeks do not know how to build a state. This is not in the country’s DNA. This is something the Germans are better at so Greece should import heir experience and know-how.
2. Greece should (for a while) stop importing anything from the Germans, the French and the rest of them that it could be producing itself or that it does not absolutely need. Greece should enforce import tariffs in order to protect and revitalize domestic production. During the last 20 years it has been comparably more profitable to trade and import rather than produce. This needs to change. In order to give young people a chance to start new businesses Greece needs to impose import tariffs. Unilaterally. In self defense. It is either that or the Greek version of Weimar republic will becomes more and more radicalized. It is either that or social derailing. The import tariffs will force Greeks to consume domestically produced goods and will make it attractive to start a business which produces things. At the same time those who can still afford the imports will be paying indirect taxes through the tariffs. There will be a risk of price hikes but the government should go out and control that. Import tariffs are not taught in school any more so your middle of the road economist will find a number of reasons not to do that but we are talking about the future of the country and we are talking about self defense. I’d like to see a Greek government come up with an idea or two of their own instead of bending over backwards to subject the country to the IMF variety of economic voodoo. For those who need precedence see how the German company Solarworld got the US to impose import tariffs on Chinese solar panels. It is self defense and I’d like to see Greece try it!