Sunday, July 12, 2015

Greece could have imported all the euros it needed provided it exported enough goods, or attracted enough foreign capital

See “Deprived” My Foot by George Selgin of Cato.Excerpt:
"In principle, Greece could have imported all the euros it needed, without having to get them directly from the ECB, provided it exported enough goods, or attracted enough foreign capital, to end up with a sufficiently large balance of payments surplus. For some years, while newlywed Eurozone members were still enjoying their long honeymoon, Greece did just that, relying mainly on foreign capital inflows to stay flush. The trouble is that the flows in question consisted largely of revenue earned on sales of Greek government debt, and that the Greek government, instead of employing that revenue productively, so as to be able to collect taxes sufficient to keep its credit afloat, used the money it borrowed to further fatten an already bloated public sector. The subprime crisis, to be sure, confronted Greece — along with much of the rest of the world — with tight money. But with the help of a more responsible government Greece might eventually have gotten through its debt crisis, as Spain and other formerly debt-crippled Eurozone members have managed to do. European authorities, it’s true, contributed to Greece’s spending spree, by giving Greece’s creditors reason to assume that they’d never let any eurozone state default and that they’d never let the eurozone shrink. Those authorities may also be faulted for not recognizing the futility of their attempts to make a Greek bailout conditional upon severe austerity measures. Still, the Greek government is ultimately to blame for having borrowed, and then squandered, so much.

Now Greece, its credit in shambles, is on the verge of collapse. For some time now it has had to depend on direct ECB support of its monetary system, and unless Greece’s latest reform proposal is accepted by the EU, that support will run out. Yet it blames its predicament, not on its own government’s profligacy, and not on its resulting inability to raise the euros it needed to stay solvent through the normal operations of international exchange, but on the strings the ECB and other lenders have attached to their offers of emergency funds.

Stuff and nonsense. When an entire multi-national currency area runs short of money, it is presumably some central bank’s fault. But when one country alone runs short, the blame rests squarely with that country’s own misguided policies."

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