May 10, 2010
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International (and Domestic) Economics
I've watched the Greek fiasco with some interest. Over sixty years ago I was a cadet on a merchant ship delivering cargo to Greece. Even in those days it was a giveaway - several thousand tons of UNRRA wheat. The Greek economy was in such bad shape that the going rate of exchange was 15,000 Drachma to one dollar. I remember eating the top of the menu in a local restaurant and the cost being the equivalent of a couple of cents.
Greece was just coming out of a civil war with communists and seemed to feel constrained to become basically a socialist economy - for political purposes. As long as they had an independent monetary unit and policy, they were responsible for their own economic problems and though they always had a volatile and contentious work force, they were not too tempted to borrow themselves into insolvency.
Apparently when Greece joined the EU and adopted the Euro, the government saw possibility of irresponsible borrowing and spending beyond their wildest dreams. Hire everyone - give them everything that asked for - issue bonds based on the Euro and not worry. After all, their money and bonds were tied to the rest of the European Union and they would not be allowed to default.
Well, now we see the result of a policy the U.S. learned was folly of over 200 years ago: You can't divorce money from national politics - that's one reason we abandoned the Articles of Confederation (where each state was still more or less sovereign) and adopted the Constitution and a strong Federal Government. The European Union must now back up Greece's folly to their own detriment. I predict the partial break-up of the EU with Greece ultimately left to its own devises.
Many feel that the U.S. is going Greece's route. Not so, At least two tax increases, to pay for the current up-front deficit are planned. Our entitlements are still easily manageable.
Comments (2)
It's interesting to me that the very people who are screaming about the deficit in this country are also the ones who caused it.
I don't pretend to be a student of political or European national structure, but it would seem to me that the countries of Europe are too diverse to try to have a common economic system.
@Nance1 -
They are finding this out - the hard way.
Actually, the problem is a good deal more complex but at its base, it follows the old theme of each country trying to get "Its own fair advantage"