A country in crisis should come out of monetary union?
Felstein recalls the conditions for a successful monetary union (workers' mobility, fiscal and political union with the ability to make transfers from one region to another).In a situation of excessive debt, a small country with its own currency would depreciate its currency and should pay a higher interest rate to pay its expenses, but within the EU the cost is more, the country in question is trying to play the stowaway by making excessive deficits.
While some countries including Spain and Ireland have not played this game (before the crisis the budgets of these statements were balanced), Greece has undoubtedly been a free rider behavior. To pull the country out of crisis, some authors have questioned whether an output of the euro would not be beneficial.
As noted, among other Bernal , Leaving the euro and return to a national currency would have dramatic economic consequences. A country that would choose such a policy would benefit certainly a devaluation of its currency allowing it to restore its competitiveness. This adjustment would be faster than the decline in wages is at work today in Greece. But insofar as one can hardly imagine a country repay its debt denominated in euro with a devalued currency, it's a safe bet that this output of the union would be accompanied by a default (or restructuring debt). But a default, creates distrust of investors over a long period. To stem capital flight, only a higher interest rate to pay the risk premium is possible. It would limit the devaluation and thus gains in exports but also pummel her investment and ultimately the country's growth. So economically speaking out of the euro seems unthinkable, politically it is much less cons, because we can imagine quite easily populist surfing the recession, came to power with slogans of anti-European. Barry Eichengreen does not share this view, for him out of the euro is just hard to imagine politically.
analysis Stiglitz is probably one of the most original, the author follows Keynes in saying that this is not the balance of trade deficits that pose problems but surpluses. Within the European Union is therefore Germany, which exerts a negative externality, leaving the monetary union would lead to a devaluation of the euro that would restore the competitiveness of European countries in deficit . The author proposes alternatives obviously consensual. True to his beliefs, he considers that the austerity through lower wages is frivolous, and believes that if Europe can not reform its institutions and provide adequate tax structure so as to drop the euro rather than to impose on people a long agony.
Originally evil
De Grauwe recommends the establishment of a centralized budget that would allow an automatic transfer to countries in difficulty. This solidarity mechanism (insurance) would limit the use of the market. The author notes that, apart from Greece, a large part of European governments have eu des déficits limités et une croissance de la dette relativement lente en comparaison avec l’endettement privé. La crise des États, n’est que la conséquence de la crise immobilière et bancaire née en aout 2007 :
“Those who say that it is government profligacy that is the source of the debt crisis are mistaken. They also fail to see the inevitable connection between private and public debt. This connection is particularly strong in countries like Spain and Ireland that have been hit badly by the debt crisis. [...] Spain and Ireland were spectacularly successful in reducing their government debt to GDP ratios prior to the financial crisis, i.e. Spain from 60% to 40% and Ireland from 43% to 23%. These were the two countries, which followed the rules of the Stability and Growth Pact better than any other country – certainly better than Germany that allowed its government debt ratio to increase before 2007. Yet the two countries, which followed the fire code regulations most scrupulously, were hit by the fire, because they failed to contain domestic private debt.”
Tyler Cowen revient sur la corruption en Grèce, il souligne que dans les classements internationaux ce pays est proche de l'Égypte ou de Éthiopie. L’économie souterraine représenterait 20% du PIB, l’évasion fiscale semble être a national sport representing a loss of 30 billion euros of tax revenue . This difficulty in collecting the tax is worrisome for prompt repayment of debt.
Reinhart and Reinhart we queue blues by reminding us of the unsuccessful efforts of Argentina which ended in a default of 132 billion euro in 2001 and a GDP contraction of 15%. The authors further note that countries that have pursued austerity plans and it came out (in 1995 Mexico, South Korea in 1998, Turkey in 2001, Brazil in 2002) had a debt in terms of lower GDP Greece.
Solutions?
Laurence Boone talks about the issues of anti-crisis plan, this plan allows the ECB to buy back sovereign debt and grants to the European Commission borrowing capacity of 110 billion euros. Finally, a bottom 440 billion would lead to lower cost countries in difficulty.
Burda and Gerlach proposes the establishment of a committee of independent experts who follow the evolution of Member States' budgets. The new pact of stability it offers, is gradual and very demanding, with an assessment by the experts when the deficit exceeds 1% and an adjustment procedure from 2%.
Wyplosz back on the 750 billion euro provided by Member States and the IMF (which provides 250 billion), he is particularly concerned about the risk of recession-related austerity plans that would undermine tax revenues and weigh down deficit and therefore the debt.
Aglietta also considered that the austerity plan has a high probability of failure from his point of view the crisis is not a liquidity crisis but a crisis of credit against which the only solution is a debt restructuring:
"A cardinal mistake has been made, that the financing plan of 110 billion euros over three years allocated to Greece can not dissipate. The same error as that committed in 1982 by the club of sovereign creditors of Mexico was repeated. It denies that there is a solvency problem and pretends to believe that there is a transient problem of liquidity. This error in the time claimed the lost decade in Latin America as a whole. The countries were exhausted by the austerity plans imposed by sterile International Monetary Fund (IMF) to preserve the creditor banks. Only at the end of the decade with the Brady initiative that the debts were restructured, the banks have got rid of their debts with discounts and economies have been able to find the path of growth. [...] A restructuring plan reduces the cost of a default if it occurs. A study by the Bank of England showed that a country that fails without agreement with its creditors suffered production losses three times higher than countries whose debt has been restructured . "
This analysis is similar to that proposed by Mayer and Big considers that" a liquidity problem postponed Is A problem solved, to a solvency problem postponed Is A Made intractable problem. "
If want more information, see the work of De Grauwe on monetary unions (it is a classic, easy to read and exciting), the journal of literature and Betsma Giuliodori (2009) and finally Baldwin has conducted a review of published posts on vox-eu.
References
Betsma and Giuliodori (2009), The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research, Journal of Economic Literature.
De Grauwe, P (2009), The Economics of Monetary Union, 8th Edition, Oxford University Press.
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