15. April 2010
Vorhin habe ich mir auf CNBC die Show “European Closing Bell” angeschaut, und fühlte mich irgendwie motiviert der Redaktion gleich mal eine Email zu schreiben (Feedback war vom Moderator erwünscht).
Dear Mr Guy Johnson,
Mr Schachtschneider’s arguments are based on logical reasoning from a certain perspective. Of course, it would be fine to fix the refinancing problems of Greece in the short run, because politics and political media is a short term minded business (as we all know).
Let’s repeat some facts and arguments. The whole concept of the currency called EURO is based on the Maastricht rules. The enforcement of Maastricht rules (not the rules themselve) were already softened from the very beginning “to allow some flexibility”, say in euphemistic political public relation tongue. The Maastricht rules are bloody simple:
(i) not more than 3% bugdet deficit per annum,
(ii) not more than 60% total debt to yearly gdp.
Even monkeys are capable to comprehend rules (i) and (ii), right? (Monkeys is the intellectual standard you need to insure if politicans are involved. It’s rather an insult for monkeys). And the end of the day, it doesn’t matter whether Maastricht rules are formally fulfilled (from point of measurement), e.g. EURO-country X reached “exactly” (= a running gag for any statisticans) the required thresholds outline in rules (i) and (ii). The idea behind rules is that eurozone governments try HONESTLY to reach the goals (that is the normative side of rules; teh “normative” is why you might think your neigbour is a sucker; very important for lawyers becoz “normative” is the thing which is written in law, to be judged, and have to be compatible to the “public” opinion = law).
- There is an EURO-country “ES”, say, that reached approximatly rules (i) and (ii) since introducing the EURO in their country. However the didn’t made it recently bcoz a major domestic industry plumped to almost nothing. An observer is likely to say “that is an unconventional crisis”, a kind of “exception”. The “normative” side say “OK”.
- There is another EURO-country “GR”, say, that “formally” fulfilled the rules (i) and (ii) since introducing the EURO as a currency. However, it turns out that “formally” was “window dressing” and the local government haven’t try to conform with the rules (i) and (ii) in reality. An observer would say that are “cheaters”. The “normative” side say “f*** off”.
What happens to legal entities in the real business world who were praticing excessive window dressing? To give an example, Enron and Worldcom are history, aren’t? Such legal entities reached point were investors were unwilling to refinance their ponzi scheme. In case of govt debt it is a different game.
Countries cannot broke like firms (It is impossible to layoff a population; They will be still there; Ok in France you cannot even layoff corporate personnel because corporation and the state is kind of the same…from local “normative” perspective ). However, there is another, quite old way, that have been proofen to be working for decades, ohn no for centuries. It is called “currency depreciation”. Look at our example EURO-country called “GR”: It is a “cheater” with a weak domestic economy. The only way out to recover confidence in this “cheater”-country is performance, economic performance (Actually the “cheater” doesn’t matter – The big issue is the weak domestic economy if you HONESTLY talking about prosperous prospects of “GR”). However, in this case the only way to jump-start a weak economy of “GR” is to devalue the goods and services they are producing (or will produce) in order to enhance the value propositions of theses goods and services for foreign buyers. That leads to the following strategic options:
(a) cut wages to lower production costs of goods and services ==> Riots in “GR” will worsen.
(b) “depreciate” the (non existing) local currency ==> The people will not realize it immediatly.
In both cases the wealth of “GR” will be reduced! But that is just the “perceived” wealth. In terms of “real wealth” they already lost it because of their excessive debt increases – It is just about the question when, what time, the people of “GR” realize that have lost something what have never been there. There is only option (b) “practical” from “politics” point of view – under the assumption politics is trying to reach an “economics compatible” solution. However, is it neccessary to kick “GR” out of the EUROzone? No! The only requirement is that “GR” (re-)introduce a local/regional currency, that is used by the “GR” goverment to pay all their bills, e.g. paying civil servants, paying supplier of public service entities, etc.
You must imagine that Calfornia did the same with paying their civil servants with IOU-notes, from abstract point of view. These IOU-notes was actually a form of “Californian” currency. E.g. if “GR” would start to pay their civil servants and the suppliers of public entities with IOU-notes (called “Drachmen-Paper”, say), then these notes starts to emerge as a local currency automatically, because receiver need to get rid of it, e.g. by buying stuff with it at discount compared to the EURO, say.
Conclusion: Mr Schachtschneider is an EU/EURO-opponent (Torries should love him, right?). However he is right, that rules are not rules, if these rules are ignored notorically. It is typically German to divide the world in black/white. Therefore, some arguments of kicking “GR” out of the EURO-zone seems quite radical. I hope the reader of this letter looked at the last paragraph. The problem of “change” is not the goal, rather the “way how to get there”. It is not possible to kick a EURO-member out from one day to another, e.g. “GR” reintroduce the Drachme tomorrow. That is a problem because “GR” need a kind of Drachme to fix their domestic economy. Therefore a hybrid, transition, “kind-of” currency thing like IOUs would be the solution.