I don't beak High German , so I don't know how the translation went , but it sounds dandy to me:
Die jüngste Griechenland-Krise rückt das größte Strukturproblem des Euro inward den Vordergrund: Unter dem Dach einer gemeinsamen Währung müssen Staaten genauso wie Firmen pleitegehen können. Banken müssen international offen sein , sie dürfen nicht vollgepackt sein mit den Schuldtiteln lokaler Regierungen. So state of war der Euro ursprünglich konzipiert. Leider haben Europas Politiker locomote erste Prämisse vergessen und sind zur zweiten gar nicht erst vorgedrungen. Jetzt ist es Zeit , beides inward Angriff zu nehmen....The English version:
Greek Lessons for a Healthy Euro
The most recent Greek crisis brings to the foreground the primary structural work of the euro: Under a mutual currency sovereigns must default only similar corporations default. And banks must locomote opened upwards internationally , non stuffed amongst local governments’ debts.
This is how the euro was initially conceived. Alas , europe’s leaders forgot nigh the start as well as never got approximately to the second. It’s fourth dimension to cook both.
If Volkswagen defaults on its debts as well as goes bankrupt , nobody dreams that it hence has to leave of absence the euro zone as well as start paying its workers inward Volkswagen marks. In a currency matrimony , governments cannot impress their means out of problem , so they are only similar companies.
When Hellenic Republic got inward to problem , the start bailout went to the High German as well as French banks who had bought lots of Greek debt. Those debts were all transferred to official holders , pregnant , indirectly the High German taxpayer.
Why , amongst the 2008 financial crisis already inward the nurture persuasion mirror , were European banks — likewise large to neglect , evidently — allowed to charge upwards on Greek debt , to the indicate that they had to locomote bailed out? Why did europe’s depository financial establishment regulators allow banks concord sovereign debt every bit a jeopardy gratuitous asset?
The work has exclusively gotten worse. Greek banks are stuffed amongst Greek authorities debt. That’s why at that topographic point was a run. Greeks , knowing their banks volition neglect if the authorities defaults , rush to larn coin out. They accept stopped paying their mortgages , every bit they accept stopped paying taxes , as well as stopped paying each other. The economic scheme is plummeting. Even amongst the banks at nowadays supposedly opened upwards , uppercase controls stay inward house so Greeks cannot pay for imports. And savvy Greeks know at that topographic point is nonetheless a take away chances of Grexit , bargain failure , depositor “bail-ins ,” as well as tightened uppercase controls. They would locomote fools to seat coin dorsum inward banks.
H5N1 modern economic scheme cannot business office without banks. Hellenic Republic volition non restart its economic scheme , restart its taxation collections , as well as restart whatsoever promise of paying its debts without completely opened upwards as well as trustworthy banks.
Banking across Europe should locomote opened upwards , as well as divorced from local authorities debt. H5N1 Greek should locomote able to seat his or her euros inward a pan-european depository financial establishment , whose assets are diversified across Europe as well as volition non fifty-fifty hiccup if Greece’s authorities defaults. H5N1 Greek occupation organisation should locomote able to borrow from the same depository financial establishment , whose deposits come upwards from all over Europe. If a Greek depository financial establishment fails , whatsoever European depository financial establishment should locomote able to come upwards inward as well as operate it the adjacent morning. And the Greek authorities should accept no correct to select grip of deposits , strength banks to purchase its debts , or alter the currency of those deposits.
If this had been the illustration , at that topographic point would accept been no run. The Greek economic scheme would non accept collapsed. And as well as so Europe could accept been a lot tougher amongst the Greek authorities nigh repayment.
This is how the the States works. When states as well as cities inward the U.S. default — such every bit Detroit , Puerto Rico , or , perchance Illinois — at that topographic point is no run on the banks , as well as banks arrive at non neglect or close. Why? Because nobody dreams that defaulting states or cities must secede from the dollar zone as well as invent a novel currency. State as well as metropolis governments cannot strength nation banks to lend them coin , as well as cannot select grip of or redenominate deposits. Americans tin laissez passer on notice easily seat coin inward Federally chartered , nationally diversified banks that are immune from nation and local authorities defaults.
As a effect , when ane of our nation governments gets inward financial problem , nobody thinks they ask to rush to their depository financial establishment to larn their coin out , at that topographic point is no “contagion ,” as well as much less describe per unit of measurement area for bailouts.
This was how the euro was supposed to locomote laid up. Many economists accept been alarm nigh it for years. But governments similar to purpose their banks every bit piggy banks , as well as it never happened.
Hellenic Republic is non the end. Italian as well as Castilian banks are only every bit loaded upwards amongst their governments’ debts , as well as only every bit prone to a run. There is fourth dimension to de-fuse this bomb slow , but that fourth dimension volition run out.
Sovereign default without locomote out as well as opened upwards banking are the fundamental requirements for the european currency union. H5N1 currency matrimony does non ask “fiscal union.” The U.S.A. did non bail out the metropolis of Detroit , or states when they failed. H5N1 currency matrimony does non require similar economies. Panama uses the U.S.A. dollar. H5N1 currency matrimony does non ask countries to accept similar cultures , values , economical evolution , or productivity. H5N1 currency matrimony does non ask political union. Europe used golden every bit the mutual currency for centuries , centuries when Kings defaulted frequently.
Many people say that pocket-sized countries ask their ain currencies , so they tin laissez passer on notice artfully devalue. But a century’s worth of devaluations as well as inflations did non arrive at a Greek increment miracle. There is no central charge per unit of measurement at which Greece’s authorities workers volition start exporting Porsches to Stuttgart. Rather , it was binding themselves to the euro that produced a smash , exclusively sadly wasted.
Hellenic Republic off the euro volition locomote a disaster. Drachmas volition sure non locomote convertible , so Hellenic Republic volition terminate upwards similar Republic of Cuba or Venezuela , amongst authorities workers as well as pensioners paid inward worthless local currency , as well as everyone who tin laissez passer on notice larn newspaper euros operating on a cash basis. No efficient large businesses tin laissez passer on notice operate inward such an economy. Greece’s exclusively promise is to liberalize its economic scheme , opened upwards to Europe , grow strongly , as well as pay dorsum its debts.
The euro is a dandy as well as worthy projection , as well as a necessary precursor to salubrious opened upwards economies inward pocket-sized countries of a globalized world. It’s fourth dimension to goal edifice it every bit originally conceived , non plough it into a bailout union.
Mr. Cochrane is a Senior Fellow of the Hoover Institution at Stanford University.
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