The country’s op-ed pages have been full of condemnations of the dysfunction of American politics, what with all the populist clamor and partisan disagreement.
So, a thought experiment: What if we were governed by a sophisticated transnational elite that operated outside of normal political channels as much as possible and, sharing similar values, forged compromises relatively easily? What if the elite were high-minded and visionary? What if they succeeded in doing “big things”?
In Europe for the past couple of decades, this hasn’t been a fanciful hope, it’s been a reality. A political and financial overclass engineered the adoption of the euro, based on one of the world’s most foolhardy delusions since the fall of the Berlin Wall: that you can have a common currency without a common country.
Two friends e-mail with different takes on the euro, which I post here for your consideration.
Rich, I normally agree with you but don’t on the euro. People should have the right to sound money regardless of optimal currency zones or fiscal transfer unions. As long as Germany has an interest in protecting the value of the euro, lots of countries should use it as a competitor to gold. Turkey should adopt the euro tomorrow and take off in growth. Don’t wait for France’s blessing. I advocate a gold price rule (it’s a Kemp/Forbes/Bartley framework.) The political trappings don’t matter. Moving more people to sound money is the goal. Your article concludes with a call for the drachhma for Greeks, which is a horrible and unnecessary fate.
Somebody pointed out to me the other day that Hayek’s The Denationalization of Money (1974, I think) included a warning against the European single currency proposal, for all the right reasons. I know that work well but had forgotten about that warning. He didn’t spend much time on it because he hadn’t considered it likely that such a silly proposal might actually get anywhere.
One point, though. At the end, you should say, “bring back the Deutschmark” , not the drachma. Technically, it would be much easier to take the strong nations out of the Euro and let it fall downward until the PIIGS were able to recover than to kick the PIIGS out and keep the Germans in. The holders of German euro-denominated paper would cheerfully trade them for New DM-denominated ones, whereas the holders of Greek Euro-demoninated paper would have to have drachma paper crammed down. Additionally, the German banks would have to start sustaining currency losses on their PIIGS paper as the DM rose against the rump Euro, but it would be an ordinary rather than an extraordinary loss and with some relaxation of the Basle rules would not have to be taken all at once. The Germans would still have to refinance their own banks, but that would probably be cheaper than continuing the bailout of the PIIGS, and more acceptable domestically. It would stagger German exports for a while as PIIGS consumers became unable to afford Mercedes sedans, and had to buy Fiats instead. But they have other export markets.
I have been saying that German exit was the solution for some years now. A lot of other people are coming around to this conclusion. Maybe it will happen before they’ve wasted more than a trillion or two on these futile bailouts.