Tuesday, June 21, 2011

Rare Celestial Alignment

It's probably not too common that Paul Krugman and Lubos Motl agree on matters of financial policy, so I will note that they are largely on agreement on one aspect of Greek default - that it should occur as soon as possible.  To be sure, their reasons are almost diametrically opposed: Lubos wants default because he wants to enjoy the spectacle of Greek suffering, and because he thinks default won't have much impact on the rest of Europe, or at least on him personally.  Krugman, on the other hand, thinks default now (rather than later) will minimize Greek suffering and minimize the inevitable global financial trauma that will ensue.

I will go along with Krugman, both because I approve of compassion and because he actually knows a good deal about international economics, but that leaves the question of who is on the other side of this issue.  The other side consists of the European Central Bank and the bankers it represents - the people to whom Greece (and Ireland, and Portugal, and Spain, and maybe Italy) owe a few zillions of Euros.  Krugman and a lot of other people whose opinions I respect think that they are living in a dream world, where Greece will somehow miraculously manage to pay up if they just wait long enough, or at least that they can have time enough to shuffle the bad debt off on somebody else.

Also, I think, there are those who hope that Europe can indeed become a real economic union, and that this crisis might provoke it.  That would involve a massive cession of financial power to the European central government, and I really can't see it happening.

The odds are probably fair that the fundamental instability of the Euro will provoke a disintigration of the EU - which could be another reason nationalists like Lumo can't wait.