Defending the euro

Oh dear, there\’s sense in here but nonsense as well:

The annoying thing about economics is that nearly all issues of any importance can convincingly be argued either way. It is only the long passage of time that validates one line of analysis over another, and even then, established orthodoxies get periodically overturned according to the fashion of the age.

This is very true, for very rarely are there solutions in economics, rather, there\’s a balancing of trade offs.

However:

In reality, no one will leave any time soon. Far from the crisis undermining the euro, says Willem Buiter of the London School of Economics, the single currency has proved a bulwark against the crisis. The economic situation among peripheral members of the euro is grave, but just think how much worse it would be if the likes of Ireland, Italy and Spain had floating exchange rates.

Quite, like Iceland (as they mention) they\’d go bust. Which, arguably, is a good thing. The reason we have bankruptcy is not because we actually like it so much as because we recognise that there are times when something is completely fucked. Time to wipe the slate clean and start all over again.

Iceland has done this. Harsh, painful, yes, but is it actually worse than what Spain is going to have to go through? Years and years of grinding down the economy?

Economies are (*see comments) not companies, this is true, but both have similarities.

My bet is that having bitten the bullet and collapsed, that the Icelandic economy will recover before the Spanish and will end up better off in the long run for having done so.

5 comments on “Defending the euro

  1. “Economies are not companies” I think you meant.

    Reminds me of an interview with Milton Friedman who predicted that the EU would blow apart by about 2012. Interesting to see if this prediction get validated by the passage of time

  2. It defaulted on its external liabilities and its creditors have agreed a bailout with a 30-year payback period. I’d say that was ‘bust’ for any sensible value thereof.

  3. Is it a bit meoldramtic to say that iceland went bust?
    For a true bankrupcy the creditors take over the assets, which would be iceland itself – to my knowledge that has not happened.
    I am not sure that Bankrupcy is applicable to a nation unless the creditors come to posses all that there is within that nation. This is unlikely, due to armed forces. If you try to foreclose on iceland they will fight (think cod wars).

    Perhaps it just means that the creditors take over the government, again this has not happened and again there is the issue of icelandic soldiers making it a bloody venture to attempt to do so.

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