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capcana euro din perspectiva editorilor NYTimes

When they introduced the euro in 1999, European leaders said the common currency would be irreversible and would lead to greater economic and political integration among their countries. That pledge of permanence, long doubted by euro-skeptics, seems ever less credible.

While the eurozone may have temporarily avoided a Greek exit, it is hard to see how a deal that requires more spending cuts, higher taxes and only vague promises of debt relief can restore the crippled economy enough to keep Greece in the currency union. On Thursday, the Greek Parliament passed a second set of reforms required by the country’s creditors. Other changes, like higher taxes on farmers, are expected later in the year.

The combative finance minister of Germany, Wolfgang Schäuble, has further undermined confidence in the euro’s cohesion by saying that Greece would be better off leaving the common currency for a five-year “timeout.” As a practical matter, an exit from the currency union would almost certainly be permanent, since readmission involves a grueling process. The eurozone requires new members to keep inflation below 2 percent and to have a maximum fiscal deficit of 3 percent of gross domestic product and a public debt that is no more than 60 percent of G.D.P. The plight of the Greeks has made countries that do not use the euro, like Poland and Hungary, far less eager to join the currency union, which has come to mean a loss of sovereignty and a commitment to austerity, regardless of economic reality.

Of course, the euro was never entirely about economics. European leaders believed the single currency was a big step toward creating an irrevocable alliance among countries on the continent. But many experts warned that it could make its members less stable unless it was followed by a tighter political and budgetary union. Since that did not happen, the currency union was left fully vulnerable to economic crises and to the will of Europe’s more powerful economies.

All those fears have played out in Greece, even as the threat of exits from the euro hangs over other weakened countries, like Italy, Portugal and Spain. Senior leaders in Germany, Finland and Slovakia who have publicly suggested a Greek exit seem to think it would scare weaker economies into accepting more austerity. That may not be necessary; some radical parties in those countries are already openly talking about leaving the euro.

The question now is what is the cost of leaving? Can a modern economy withstand the immediate damage of an abrupt currency change if the benefits of devaluation and regaining full control over fiscal and monetary policies could be limited and could take years to realize?

For example, returning to the drachma, which would trade at a deep discount to the euro, could help the Greek economy by making its island resorts, olive oil and feta cheese cheaper for tourists and foreign buyers. The country would also be able to control its own monetary policy, by pumping more money into the economy to stimulate lending rather than relying on the European Central Bank, which until recently has done too little.

But leaving the euro would mean few foreign institutions and investors would be willing to lend to the government, possibly for many years after exit. That could make it harder for the Greek government to buy essential imports like medicines, oil and gas. The financial system would most likely collapse under the strain of bank runs. Many Greeks fear that a return to the drachma could also lead to runaway inflation if the country’s central bank prints too many drachmas to prop up the economy. And that doesn’t even account for logistical challenges like redenominating contracts and printing new paper currency.

As bad as an exit could be on the debtors, the creditor countries like Germany could also be damaged. They would lose most of the money they lent to the troubled nations in the last few years. The government of Greece owes more than 300 billion euros ($326 billion), most of it to other European governments, the International Monetary Fund and the E.C.B. It is also possible that a Greek exit could strengthen the euro, which would hurt exporters in other eurozone countries by making their goods more expensive on the world market.

Given all the immediate losers in the Grexit scenario, the creditors would be foolish to make it inevitable — as the latest bailout terms appear to do. What they should be doing is changing the economic policies that have turned the currency union into a debilitating trap that countries cannot escape without suffering even more pain.

SP Singapore 2 days ago
Schauble knows that Greece is inevitably going to exit the Euro because it can't pay its debts. The fact that he's giving even more taxpayer billions to an obviously insolvent country is a bit awkward for him. The other awkward thing he doesn't want anyone to notice is that some of those taxpayer billions are being used to bail out private banks that extended risky loans to Greece. So he's trying to talk up the Grexit as a good thing, and keeping his fingers crossed that no one will blame him for the highly expensive con job he has perpetrated for the benefit of his banker friends. Well, he has been mostly successful, because our media have mostly focused on Greek corruption, and completely ignored the money trail.

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Joe Sandor Lecanto, FL 2 days ago
Let's put things into perspective. Essentially the banking system is to blame but is rarely mentioned. They've got a neat system rigged - socialize losses and privative gains. Besides, bankers by their very nature like to lend money. Now perspective - Greece is to Europe like Miami is to the USA. When housing bubbles burst in FL or AZ, Washington still sends the pensioners living in FL and AZ their social security checks. We even have minimal safety nets. (Curiously, Red Staters get a lot more from Washington per capita that Blue Staters - or maybe its not curious).We don't use the word pensioner much in the US - maybe we should. It is a moral obligation for a just society to provide for the general welfare (didn't Jefferson write that?) - Pensioners are old, they aren't evil. Excuse me for rambling - it must be the elitist red wine.

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Mark Thomason is a trusted commenter Clawson, MI July 25, 2015
I agree with this assessment, except for the phrase "the threat of exits from the euro hangs over other weakened countries, like Italy, Portugal and Spain."

The threat may hang over Greece, but if all of those left, the threat would be to the Euro itself. That threat "hangs over the Euro" and over Germany.

That correction emphasizes that the hard line taken by Euro leaders is destructive not only to the current victims of their imposed austerity, but is self destructive to their banks and their Euro too.

The Euro would be left no better off than Greece trying to revive its currency, if they crash the Euro by so many leaving, and crash their banks by multiple country defaults.

These bullies are playing with fire in a gas station.

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TC Durango, CO 2 days ago
Watching the latest chapter in the Greek debt crisis has been a sobering education that once again proves the old adage - "the more things change, the more they stay the same". The wealthier northern European counties have always disdained their poorer neighbors to the south and the way Germany and others have framed the Greek debt problem as a matter of moral failing that must be punished at all costs, shows that they still do. Germany and it's supporters in the EU have behaved much as the 1% do in this country - blaming the struggles of the 47% on their weakness, laziness and moral inferiority. The idea that wealth and fiscal discipline are synonymous with virtue and goodness was pretty much conclusively disproven by Germany's actions in WWII. Germany and the rest of Eurozone better wake up and realize that spitefully insisting on even more austerity for Greece will not "teach them a lesson", but only add to the instability of the Eurozone now and in the future.

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David Raines Lunenburg, MA 2 days ago
Before the euro there was no confusion as to the relative wealth of the northern European countries with that of those of the south. But union gave the Greeks, the Spaniards, and others the feeling that they were Europeans, too, and should be able to live just like the others.

Audi and BMW were happy to extend them credit. And German banks were happy to loan money to southern governments to let them finance social welfare policies similar to those in the north.

But now Germany asks the southerners to be realistic, to recognize their relative poverty, and to live according to their means . . . while paying back all the money they borrowed.

If the south needs to be realistic, though, the north does, too. If it wants the Greeks to admit they're poor, then Germany has to admit it made loans the Greeks don't have the means to repay.

Germany has had a nice ride on the euro-boom, but it needs to recognize that a lot of its profits were on paper only.

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Ron Cohen is a trusted commenter Waltham, MA 2 days ago
The suggestion of a "temporary" Greek exit from the euro is a cynical ploy by German hardliners who advocate it. No one should be fooled: there will be no return once they are out.

How will the Greeks buy essential food, fuel and medicines from abroad with an almost worthless new drachma, without massive, continuing, "humanitarian" aid from the EU? They will still be subject to economic dictation by Germany, their independence an illusion.

Two wrongs don't make a right. The Greeks should stay in the euro, More years of austerity are not inevitable if the Germans would relent on their self-righteous need to punish the Greeks.

Instead, Germany should offer a pragmatic, carrot-and-stick "middle way," in which each step of reform implementation is met by additional debt relief, and additional funding of infrastructure and other investments.

Germany should also follow China's example, and move away from an export-led economy, which it can do by stimulating domestic demand. It should also allow some modest inflation at home. These steps would make life much easier for all its euro partners, including Greece, for technical reasons that Paul Krugman, Ben Bernanke and other economists have discussed at length.

The burden is on Germany to make the euro work. It should start with Chancellor Merkel educating her compatriots as to the economic realities. Many of the replies tacked onto my comments by German readers show an appalling and self-serving naiveté about those realities.

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Jeff Evanston, IL 2 days ago
Let's not forget the banks the made risky loans to Greece in the first place. They have come out just fine. Much the way banks here in the US ran the subprime loan fiasco, passed the losses on to US taxpayers, and are now making nice profits. Their CEOs are living like kings.

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Timezoned New York City 2 days ago
So notice here that Schauble, the German finance minister, is basically admitting that austerity won't work to restore Greece's economy, while at the same time demanding that Greece implement ever harsher austerity measures.

I'm amazed this hasn't gotten more comment. There have been a number of dead giveaways like this lately, for example in the week after Tspiras called the referendum, Angela Merkel said that there could be no negotiation because the referendum was called, and Schauble said that all negotiation was off because of his "anger" about Greece's "behavior" in calling the vote.

What all of this reveals is that the Troika and particularly the German government is not interesting in negotiation and finding a solution so much as
in obedience and punishment, obedience in following their misguided obsession with spending cuts no matter what the consequences and punishment for anyone who doesn't do so.

And now they're admitting that it won't work. I don't know what else you can call this other than pure sadism.

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CK Rye 2 days ago
How about lenders paying the price of their risk-taking? The risk is held by the lender, how is lending to be disciplined if losses are never realized?

Individual citizens don't have a sense of increased obligation with cumulative national borrowing because it's too distant an enterprise, they simply live their lives and work. It is the lender who should be restraining themselves to prevent these scenarios from being created. Lenders need to get burned hand in hand with the debtor for balance to be achieved.

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R. R. is a trusted commenter NY, USA July 25, 2015
Dreaming of unity without understanding the realities of the different peoples and nations caused this "trap."

And these dreamers were warned well in advance of what fiscal chaos would eventually ensue.

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Woof is a trusted commenter NY July 25, 2015
When Argentina lifted the peso = dollar parity, it couldn't borrow on the international market for some time but it's economy did not collapse.

So, yes, a modern economy can leave a currency.

The analogy with Greece is not perfect, Argentina has more to export, but on the other hand, Putin expressed interest to assist Greece should it leave Europe. Tsipras went to Moscow and met with Putin, in April.

I.e. Greece might get economic support from a powerful neighbor, unlike Argentina. Oil and gas will flow from Russia, should Greece be willing to enter Russia's sphere of interest.

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Garry Sklar N. Woodmerre, NY 2 days ago
The Euro should never have been adopted. Everyone knows that the Maastricht Accord was violated from Day1. The weaker southern European countries falsified their statistics in their zeal to join the Euro Even mighty France lied about their economic statistics. So what is so surprising? The liars have finally got caught and it's one royal mess.
Dissolution of the Euro zone would be the most positive thing for the involved nations. It's not a crime to admit that you made a mistake. Continuing on an insane unsustainable course is.

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Frank McNeil Boca Raton, Florida 2 days ago
Three years ago we visited old Spanish friends. The last night, we dined at a great place off Madrid's Plaza Mayor, with several of their friends. From the elite, they differed about many things but unanimously blamed Spain's depression, then in full bloom, on A) government corruption in the autonomous regions (e.g. the airport to nowhere not far from Barcelona) and B) the adoption of the EURO.

How so? Spain's 25% unemployment rate resulted, they said, from a massive export of jobs to Germany. How? Well, read Josef Stiglitz' account of large northern European diary producers seeking to Euro-regulate small scale Greek producers of quality resh milk out of business.

I lived through the early 1980s Latin American debt crisis and traveled widely in Southeast Asia during the late 1990s financial mess. As Stiglitz says, in Southeast Asia the IMF was out to lunch but earlier I saw it play constructively in the Miyazawa/Brady plan which provided debt relief to Latin America.

Today, the IMF is the only member of the troika with a dollop of common sense. Can the U.S. Treasury Department help the IMF to persuade Germany that a Brady type plan is necessary for Greece?

Also, what do Stiglitz and Krugman think of a MEDXIT, a two tier EURO, with a devalued Southern Euro for Spain, Greece, Portugal and perhaps Italy, (starting rate vis a vis old, northern) Euro decided by ECB)? Devaluation, as Krugman and Stiglitz say, can kick start these economies out of the dumps.

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Paul Long island 2 days ago
Has the "Euro turned into a trap"? It's not so much the currency but the economic policy of austerity that Germany and its allies continue to impose on Greece even though it has failed and has never been shown to really work despite those pointing to Ireland and Spain where the economies are still very fragile. Despite this, Greece has decided to swallow all the harsh new austerity measures in the hope that it will not turn into hemlock. The Greeks seem to be betting that the I.M.F. which has finally realized the failure of austerity will be able to convince the Germans to restructure, if not reduce, their debt. Now that the Greeks have unconditionally surrendered to the Germans laundry list of austerity demands it's up to Germany to show some reciprocity in its commitment to a political, as well as economic, union. It's time for German Chancellor Angela Merkel to show true leadership by extending a hand to Greece with some relaxation of the terms of its debt by, at the very least, lengthening the repayment schedule. If the mean-spirited, empirically unsound economic rigidity advocated by German Finance Minister Wolfgang Schauble prevails over the larger goal of a viable European political union, it will certainly end with Greece leaving the Euro with others likely to follow.

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Jack Archer is a trusted commenter Pleasant Hill, CA July 25, 2015
The rather awful consequences of Greece either leaving or staying in the eurozone, as presently constituted, are clear. It is a classic lose-lose situation. The best solution would be to reform the euro system. That is, establish sufficient central fiscal and monetary authority to support a common currency. If that is impossible, then sooner or later another crisis, if not the aftermath of this one, will lead to Grexit, Spanexit, Italexit, etc. If Germany's economy falters, to Deutschexit. Rather than binding Europe together, the euro will lead to its disintegration. The blame-casting will be deafening.

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owldog State of Jefferson, USA 2 days ago
The Greek people should take matters into their own hands and print their own money, but first, they should get people like Joe Stieglitz and Paul Krugman to give their top economists a crash course in how to do it - so they will have a plan.

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Jim Waddell Columbus, OH 2 days ago
Greece's problems are only marginally related to the Euro. The country has been mismanaged for decades, with a bloated and inefficient public sector, a dysfunctional legal, regulatory and tax system, corruption, an overly generous public pension system, counterproductive labor rules, etc. Forget austerity, and don't worry about whether your currency is the Euro or the Drachma. If Greece addresses its self created problems the other issues will take care of themselves. If Greece doesn't address its own issues, nothing else will make a difference, even the total forgiveness of its debt.

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Alan Attlee Boston 2 days ago
As has been noted some number of times before:
monetary union without fiscal union is folly.

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Chanson de Roland Cleveland, OH 2 days ago
Most would agree that reforming the euro to correct its fundamental flaws by conforming to optimal currency area theory is preferable to Grexit. But it is also clear that the Eurozone does not have the political solidarity to effect those reforms. That leaves Greece with the dilemma of either years of bitter suffering under austerity, while attempting the OECD's reforms, some of which are advisable and/or necessary, or attempting Grexit, which, though it could result in the economic success that Iceland enjoys, would be a dangerous course that could result in disaster. And that dilemma and its dangers exist not just for Greece but also for all the members of the Eurozone and the EU, as the editorial, supra, notes.

What's to be done? When the wisest and most brilliant of economists, such as Paul Krugman, show fear and trepidation, what to do? Since the instant austerity plan offered to Greece is unviable, as even the IMF admits and its analysis shows and as Prof. Krugman's Austerity Arithmetic shows, unless the Eurogroup puts at least a viable ad hoc offer on the table for restoring Greece's prosperity, Greece should proceed with Grexit, while adopting, at the right time and in right sequence, those of the OECD's reforms that are necessary and/or advisable for improvement of its short and long-term economic performance.

And Grexit or not, if the euro is to survive, the EU must find the means and the will to reform the Eurozone as optimal currency area theory suggests.

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njglea is a trusted commenter Seattle 2 days ago
The real question is, "What are Greece, Ireland, Italy, Spain, Portugal and all the other little countries who got suckered into the Euro getting out of it?' They lost their right to self-government and Greece especially lost their tourism card because tourism is so expensive now. Their leaders should never have taken the mafia-model "let us help you then we'll own you and your assets" model. It is not too late to turn back and stop the destruction of nations.

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Richard San Mateo 2 days ago
Every "hardheaded" criticism of Greece, as somehow mismanaged or spendthrift, or poorly managed, fails entirely when it is posed in light of the decision by the EU to admit Greece and advance those funds to Greece KNOWING then of those Greek financial issues and KNOWING, years ago, that Greek repayment of those "borrowed" funds was essentially, simply, impossible. That was the reality then, just as it is now. The only difference is that now Greece has truly defaulted. The loans made to Greece were not, in that context, "loans," meaning money advanced which was going to be repaid, but instead more in the nature of grants, or wishful thinking.

And whose fault is that? Whose fault is it when a child or a relative or a friend asks for a "loan" which you know cannot be repaid anytime soon, or on any clear schedule, or ever? When asked to make such a loan, you have a choice: when you decide to make that loan as a creditor you have to live with the reality that follows. These decisions also have to be considered in light of a lender's obligation to its investors and its other motives. In this case the EU wanted to have the benefit of ALL Europe included in the Eurozone and Euro, and that is what it succeeded in getting.

These were bad loans then, when made, and they are bad loans now. The Germans are making the Greeks suffer for German greed. Greece needs to go to the Drachma as a form of national bankruptcy. Maybe Greece can recover, maybe not, but that is a different discussion.

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AC California 2 days ago
Beyond the current trouble with Greece, this crisis has thankfully given Europeans a chance to rethink the role of the euro and the EU in general. What started out as a free trade zone and economic cooperative between six core states has grown into an unwieldy supranational union of 27 sovereign members. All of these except the UK and Denmark have theoretically committed to joining the single currency and its common rules as well. But in order to truly function as a single currency, there must be a much higher level of political, budgetary, and even cultural integration than the EU currently offers.

I very much doubt this will happen; to think that the relationship between Greece, Germany, and Brussels could be akin to that of Brandenburg, Bavaria, and Berlin is absurd. There was always too much difference in politics, economics, and identity for that to happen, and there is a huge trust gap as well. A constitutional revision of the EU and euro is necessary by 2030, and I would like to suggest that the "ever greater integration" clause be dropped in favor of something that better fits the reality of Europe today.

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Tom F Philadelphia 2 days ago
Please stop making excuses for the Greeks. They have had years to get their economic house in order, but repeatedly failed to do so. The time for soft love is over, now it's time for tough love (and sending a very clear message to Portugal, Spain, and Italy!!

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Michael S is a trusted commenter Wappingers Falls, NY 2 days ago
In headier days Europeans spoke of the euro replacing the dollar or at least becoming a currency in which oil was traded. Financial markets hate uncertainty and instability and the eurozone is building both in spades.

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John is a trusted commenter Hartford 2 days ago
This is total baloney. The threat of exit DOES NOT hang over Spain, Portugal, Italy et al. Having seen the chaos that has descended on Greece that is the last thing any of them are thinking about. As for the threats of contagion these are next to zero which is why markets have largely treated the whole saga with a shrug. If Greece left it would certainly mean losses for their creditors but they have clearly decided to accept these if Greece doesn't reform. Nor is it the huge nut that the NYT implies. Germany's share in a worst case scenario is about 90 billion Euros but this will be serviced over as much as 40 years at an annual cost to the German economy of just over 2 billion euros which is chump change.

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