Quote Originally Posted by wiggin View Post
My big question for you, Hazir, is this: countries with independent monetary policies have the option of devaluing their currency to help ameliorate a difficult fiscal situation. The results aren't pretty, but they're often better than outright default. In what way is being a member of the eurozone (which eliminates the possibility of devaluing) a good thing for these stressed countries? They have fewer options and are forced into a managed default by the ECB... done in fits in starts in a way seemingly calculated to cause the greatest amount of damage and uncertainty. As far as I can tell, being in the ECB has only tied the hands of countries like Greece.

I'll admit they reaped some benefits from the currency union prior to the crash, but one could argue that those benefits - cheap credit in particular - were curses in disguise, since peripheral economies were either overleveraged or overheating, and independent monetary policy would have created a check on runaway indebtedness. How is this 'firewall' helping them?
Well, no, I think the problem of these countries is much bigger than their fiscal imprudent behaviour. The problems are that most of the mediterrenean countries are stuck in some sort of etatist state of mind. That is the core of their problems, not the debt or deficits. I see their prolifigacy as a symptom but not as the disease so to say.

Especially Greece squandered the opportunities the euro gave it, but also Italy, Portugal, Spain are still bureaucratic hell holes for business. Without the euro of course the could have tried the easy options that are always paraded out of 'managing their own currency' e.g. inflating themselves out of their debts or as real people know it, driving their middle class into poverty.

We have reached a very interesting point now; the old option of inflation all of a sudden shows the real ugly face it has by snapping back all of a sudden (the leave the euro-side of the debate). It wouldn't be the gentle decline into poverty as of old, it would be draconic cutting back to the bone or more all of a sudden. It's highly unappealing.

The second option is -finally- doing the right thing which is fiscal responsability on the one side. But on the other side a tenfold more important incentive to grow, make growth possible. And that would involve measures not needing any austerity or taxation at all. It would consist of opening up markets to more competition, it would mean more flexible labour arrangements (which also would end the extremely unfair treatment of young people in those countries). The firewall is what gives these countries the time to do all these things, without having to go through a phase during which the same probably would be enforced by the breakdown of society.

By the way, the ECB isn't so much involved in the demands on Greece, but is so very much in the demands on Italy and Spain. The rumours we hear about the demands on Italy make me suspect that Draghi was involved in them.

tldr: the ECB is pushing the bloody state(s) out of the economy, giving these countries a fighting change by having something that resembles a market economy.