OP-ED: "The Making of a Euromess," by Paul Krugman, New York Times, 14 February 2010.
COMMENT: "A Greek bail-out would be a disaster for Europe," by Otmar Issing, Financial Times, 16 February 2010.
COMMENT & ANALYSIS: "Trust is wearing thin in Europe's union of opposites," by Tony Barber, Financial Times, 13-14 February 2010.
MARKET NEWS & COMMENT: "Euro project tested by Greek crisis: The single currency has fallen hostage to flaws in the eurozone," by Peter Garnham, Financial Times, 13-14 February 2010.
COMMENT: "Greek light on an over-hasty project," by Samuel Brittan, Financial Times, 19-20 February 2010.
I wade in . . . gingerly, because the subject of the EU and its Eurozone is dense enough so as to defy easy analogies, so not easy to blog unless you want to regurgitate--a lot.
The Greek bailout question has become a mini-boom for analysis on whether or not the EU should stick to its integration schemes or settle for something less, which, at first glance, sounds more on the scale and tone of the U.S. federal system, where states can go bankrupt and serve an a lesson to the rest. But the problem is, the EU isn't far enough along in its political integration to allow such tough-love dynamics to work on their own, meaning, if Greece isn't bailed, the risk of spreading contagion on sovereign debt to would be substantial.
I may not be saying that particularly artfully (or even accurately), but what interests me is that the Great Recession of 2008 (by definition, really) catches all of the major players too early: China's not ready on the currency floating question, the EU's not ready on the political integration issue, and the US simply isn't yet past the do-nothing-but-take-no-prisoners partisanship of the Boomers (and yes, too many of the next generation of pols seem equally clueless on this score). In sum, then, the Core's three great poles all struggle at the same time, leading many experts to delve into their usual bag of tricks and predict all manner of future conflict, when, in truth, having the system's three great poles all inwardly focused is far more likely to result in a burn-baby-burn philosophy regarding the Gap's many woes. This, in turn, makes the East's economic integration/penetration of Gap regions all the more crucial. It will be, in most instances, the only game in town for developing economies for quite some time.
The only-way-out-is-to-go-forward argument WRT the EU is a bit chicken-v-egg, as Krugman points out: If the EU was more a political union, states like Spain and Greece never would have gotten into so much trouble, because money and labor, etc., would have flowed more responsively and thus corrected the out-of-whack situations earlier. But the euro, in many people's minds, was introduced too early in this process of political convergence, so the only way out of the mess now is to go forward, meaning push for even more political union amidst this crisis--not easy. Why is it the only route forward? Admitting "defeat" (however defined) on the euro would be too painful at this point.
Note that America only got its first true national paper currency during the Civil War, so we were only able to summon the political will when the Union itself was at its greatest peril (1862).
As for the short-term question of transferring funds from fellow members to Greece, there seems to be such strong popular feeling against it that I would be surprised if anything happened.
So we get this stilted outcome where the EU learns what it means to have currency union without political union (too bad for Greece) but doesn't come out of the crisis with any great impetus to change that reality.
Barber's point is that the current state of affairs basically locks in a sort of mini-global economy imbalance within the Eurozone, with Germany playing the part of China and damn near everybody else playing the U.S. Blame-wise, Barber speaks of the growing divide between the "virtuous over-achievers such as Germany, France, the Netherlands and Finland" (on the subject of public administration) and the "dysfunctional under-achievers" like Greece.
Another comparison to the U.S. from Barber:
In a conversation this week, one high-ranking European Union policymaker who has lived in the US told me not to make such a big deal of this. New England was the equivalent of northern Europe and Louisiana was the equivalent of Greece, but the dollar worked just fine for both ends of the country, he suggested. True for America, but not true for Europe. It cannot be repeated often enough that the US is a nation-state, with all the collective responsibility that entails, and Europe is not.
The EU remains an "association of sovereign states," as Germany's top court recently opined, so all expectations are that Germany will lead the effort to force fiscal discipline on Greece--the EU acting like a nastier IMF, but will oppose any bailout.
Others, like Garnham, say Germany is likely to bow to pressure and lead some sort of effort because of the wider fears of contagion and the euro's decline (bizarrely, the dollar and British pound are now rising against the Euro primarily because everybody knows these two states can print their way out of debt--i.e., devaluing their own currency [something Greece cannot do]). In this argument, the Greek crisis is a good thing, because it forces tough fiscal choices within the Eurozone earlier than in places like the US and UK (EU member but not part of Eurozone).
Brittan's piece adds some understanding on scenarios: unlike Ohio, Greece can bail from the Eurozone--the great bluff. The great counter-bluff, one assumes, is that the Eurozone would eject the Greeks. A compromise would be to let the Greeks exit and come back in devalued. But once that happens, the floodgates could open on other profligate states demanding similar rights.
So then you're back to the seemingly inescapable position: the Eurozone is forced to crack down on Greece, maybe offering some aid, and the Greeks, unless they really want out, are forced to take the tough medicine (pay freezes, spending freezes, and the like).
I don't feel like I've offered any useful additional analysis here. Then again, I almost never feel like I do whenever I discuss the complexities of European integration. I just get this headache feeling.
I welcome any comments that can make me smarter on the subject.