Project for Philosophical Evaluations of the Economy |
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Greece, the EURO and the Mother of all Depressions
Four Dialogs with the Alter Ego on the EURO currency crisis, first drafted on April 23,
published on April 27, 2010
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Part I: Near-suicidal markets
Question by Alter Ego of Noah denkt™ (AE): Here is what’s puzzling me about the evolution of the Greek debt
crisis: First, markets are appalled by the level of debt that the Greek government has incurred in part by
responding to market calls for anti-cyclic government intervention. Then a Greek government comes along that is
showing substantial guts and backbone when implementing a good part of the austerity measures that the very
same market has called for. And finally, even the EURO member states agree to develop the details of a rescue
plan that the market had supposedly been waiting for. But whatever is being done to satisfy market demands, it
can’t seem to be enough. The interest rates of Greek bonds continue to rise, and it is impossible now for the
Greek government to resolve its debt crisis on its own. What does Noah denkt™ make of all that?
Answer by Noah denkt™ (Nd): You are quite right to point out that our American Idol Hedge Fund markets can’t
seem to be appeased anymore. In fact, it is becoming increasingly clear to us, that this is no longer about the
Greek debt. Instead, this is about the sustainability of the EURO itself.
AE: Why do you say that?
Nd: Because, it seems obvious now that, if we do not see any solid growth soon, even a Greek bail-out won’t stop
markets from pushing countries like Portugal, Spain and Italy into the same dire straits that Greece is in now. After
all, there is some contagion going on as we speak.
AE: Is it feasible, however, to presume that the IMF and the EURO member states would be able to bail out
economies as big as Spain and Italy?
Nd: Well, the international community would have to bail them out if it wants to keep the EURO alive and thereby
spare themselves the mother of all depressions.
AE: Are you really sure that tax payers elsewhere would be prepared to rescue Europe from its predicaments?
Nd: Again, they would have to do that if they want to stabilize their own economies and maintain world peace.
AE: So Europe would have to be rescued yet again from itself?
Nd: Correct. There is nothing wrong with this though. The fact of the matter is that the patchwork of European
nation states with all its diverse tensions and distractions is way too difficult to manage that it wouldn’t take
repetitive worldwide interventions in order to save this from exploding.
AE: Obviously such an international intervention in Europe would come at a price for Europe too, wouldn’t it?
Nd: Of course. There would definitely be some major repercussions that the rest of the world would put in place in
order to castigate Europe for having created this EURO mess.
AE: And do you worry about the interest rates and austerity measures that are likely to be imposed in such a
scenario?
Nd: Not too much. Sooner or later Europe would rebound and recover its original position.
AE: All this depends though on whether we will soon see solid economic growth or not. Let’s talk about that then.
Do you believe that there is a chance for such solid growth?
Nd: We do. Just think about today’s rise in US home prices. Think about the positive earnings reports in the US in
this quarter. And do not forget the economic miracle in China.
AE: So there is still hope then, that Europe will be able to avoid having to seek worldwide help?
Nd: We believe so.
Part II: Keynes or not Keynes
AE: In the aforementioned dialogue you have condoned the idea of a worldwide intervention in order to rescue
the EURO currency union from crashing. How do you reconcile that with your earlier theory according to which a
more hands-off approach is required in the international economy?
Nd: Well, it would surely be wrong to change horses in the middle of the race. Since politics has so
overwhelmingly opted for a Keynesian approach at the outset of the current crisis, it would definitely be a mistake,
to not finish the job this time around. A change in philosophy, however, i.e. a non-Keynesian approach in
economic management, would have to be officially pre-announced before it could be actually implemented. After
all, it would only be fair, to give market players a chance ahead of time to adjust to this change in philosophy.
AE: But the neo-conservative Bush government did not announce such a change of philosophy either. Why then
did you criticize it for having initiated the TARP-program?
Nd: Because this government was betting so heavily on the self-regulating forces of the free market that it in deed
amounted to a philosophical sea change when the bank bail-out was implemented. In other words, we feel the
Bush government could legitimately have adopted a non Keynesian approach, without catching the markets by
surprise. The European governments however never ever came close to even contemplate a non-Keynesian
approach.
Part III: Greek government guts
AE: In your first pronouncement on the Greek debt crisis, you suggested that the Greek government might be
able to remedy its problems by itself. Do you have to admit now that you were wrong on this call?
Nd: Yes, in deed, we underestimated the hazardous, internal dynamic that is now prevalent in the financial
market. Generally speaking though, we are quite pleased with the guts that the Greek government has shown so
far in addressing its budget problems. In fact, it has done a much better job in this than most speculators would
have thought possible at the outset of this crisis. That markets still aren’t sufficiently impress by that though has
more to do with an inherent industry need to place outlandish bets, in order to satisfy outlandish client demands,
than with a reasonable assessment of reality. (See also our theory of capitalistic existentialism)
AE: In other words, you do believe that the EURO crisis will ultimately pan out alright?
Nd: Yes, we do. After all, it was basically the right decision, to further the European cooperation and initiate the
EURO currency. And so we are pretty much convinced, the EURO will ultimately survive and be even stronger
once this current crisis has been resolved.
Part IV: Merkel’s management of the crisis deserves praise
AE: The German government is drawing a lot of critics for its slow response to the Greek rescue request. What do
you make of that?
Nd: We believe, that the way, in which the German government is handling this crisis is entirely adequate. The
Germans were right, in asking for the assistance of the IMF and they are right to demand a second austerity
program from the Greek government before any subsidy money can be made available. In fact, it is only natural
that the Greeks should need the intransigence of others (in this case the German government) to be able
mobilize the last inch of their own resolve.
AE: So you do not see a timing problem here? After all, a potential rescue package needs to be ready by mid-
May.
Nd: No, we do not see a timing problem. There would be a problem, however, if this issue were to be resolved
without any prior tug of war and without a last-minute bargaining deal.
Four Dialogs with the Alter Ego on the EURO currency crisis, first drafted on April 23,
published on April 27, 2010
----------------------------------------------------------------------------------------------------------------------------
Part I: Near-suicidal markets
Question by Alter Ego of Noah denkt™ (AE): Here is what’s puzzling me about the evolution of the Greek debt
crisis: First, markets are appalled by the level of debt that the Greek government has incurred in part by
responding to market calls for anti-cyclic government intervention. Then a Greek government comes along that is
showing substantial guts and backbone when implementing a good part of the austerity measures that the very
same market has called for. And finally, even the EURO member states agree to develop the details of a rescue
plan that the market had supposedly been waiting for. But whatever is being done to satisfy market demands, it
can’t seem to be enough. The interest rates of Greek bonds continue to rise, and it is impossible now for the
Greek government to resolve its debt crisis on its own. What does Noah denkt™ make of all that?
Answer by Noah denkt™ (Nd): You are quite right to point out that our American Idol Hedge Fund markets can’t
seem to be appeased anymore. In fact, it is becoming increasingly clear to us, that this is no longer about the
Greek debt. Instead, this is about the sustainability of the EURO itself.
AE: Why do you say that?
Nd: Because, it seems obvious now that, if we do not see any solid growth soon, even a Greek bail-out won’t stop
markets from pushing countries like Portugal, Spain and Italy into the same dire straits that Greece is in now. After
all, there is some contagion going on as we speak.
AE: Is it feasible, however, to presume that the IMF and the EURO member states would be able to bail out
economies as big as Spain and Italy?
Nd: Well, the international community would have to bail them out if it wants to keep the EURO alive and thereby
spare themselves the mother of all depressions.
AE: Are you really sure that tax payers elsewhere would be prepared to rescue Europe from its predicaments?
Nd: Again, they would have to do that if they want to stabilize their own economies and maintain world peace.
AE: So Europe would have to be rescued yet again from itself?
Nd: Correct. There is nothing wrong with this though. The fact of the matter is that the patchwork of European
nation states with all its diverse tensions and distractions is way too difficult to manage that it wouldn’t take
repetitive worldwide interventions in order to save this from exploding.
AE: Obviously such an international intervention in Europe would come at a price for Europe too, wouldn’t it?
Nd: Of course. There would definitely be some major repercussions that the rest of the world would put in place in
order to castigate Europe for having created this EURO mess.
AE: And do you worry about the interest rates and austerity measures that are likely to be imposed in such a
scenario?
Nd: Not too much. Sooner or later Europe would rebound and recover its original position.
AE: All this depends though on whether we will soon see solid economic growth or not. Let’s talk about that then.
Do you believe that there is a chance for such solid growth?
Nd: We do. Just think about today’s rise in US home prices. Think about the positive earnings reports in the US in
this quarter. And do not forget the economic miracle in China.
AE: So there is still hope then, that Europe will be able to avoid having to seek worldwide help?
Nd: We believe so.
Part II: Keynes or not Keynes
AE: In the aforementioned dialogue you have condoned the idea of a worldwide intervention in order to rescue
the EURO currency union from crashing. How do you reconcile that with your earlier theory according to which a
more hands-off approach is required in the international economy?
Nd: Well, it would surely be wrong to change horses in the middle of the race. Since politics has so
overwhelmingly opted for a Keynesian approach at the outset of the current crisis, it would definitely be a mistake,
to not finish the job this time around. A change in philosophy, however, i.e. a non-Keynesian approach in
economic management, would have to be officially pre-announced before it could be actually implemented. After
all, it would only be fair, to give market players a chance ahead of time to adjust to this change in philosophy.
AE: But the neo-conservative Bush government did not announce such a change of philosophy either. Why then
did you criticize it for having initiated the TARP-program?
Nd: Because this government was betting so heavily on the self-regulating forces of the free market that it in deed
amounted to a philosophical sea change when the bank bail-out was implemented. In other words, we feel the
Bush government could legitimately have adopted a non Keynesian approach, without catching the markets by
surprise. The European governments however never ever came close to even contemplate a non-Keynesian
approach.
Part III: Greek government guts
AE: In your first pronouncement on the Greek debt crisis, you suggested that the Greek government might be
able to remedy its problems by itself. Do you have to admit now that you were wrong on this call?
Nd: Yes, in deed, we underestimated the hazardous, internal dynamic that is now prevalent in the financial
market. Generally speaking though, we are quite pleased with the guts that the Greek government has shown so
far in addressing its budget problems. In fact, it has done a much better job in this than most speculators would
have thought possible at the outset of this crisis. That markets still aren’t sufficiently impress by that though has
more to do with an inherent industry need to place outlandish bets, in order to satisfy outlandish client demands,
than with a reasonable assessment of reality. (See also our theory of capitalistic existentialism)
AE: In other words, you do believe that the EURO crisis will ultimately pan out alright?
Nd: Yes, we do. After all, it was basically the right decision, to further the European cooperation and initiate the
EURO currency. And so we are pretty much convinced, the EURO will ultimately survive and be even stronger
once this current crisis has been resolved.
Part IV: Merkel’s management of the crisis deserves praise
AE: The German government is drawing a lot of critics for its slow response to the Greek rescue request. What do
you make of that?
Nd: We believe, that the way, in which the German government is handling this crisis is entirely adequate. The
Germans were right, in asking for the assistance of the IMF and they are right to demand a second austerity
program from the Greek government before any subsidy money can be made available. In fact, it is only natural
that the Greeks should need the intransigence of others (in this case the German government) to be able
mobilize the last inch of their own resolve.
AE: So you do not see a timing problem here? After all, a potential rescue package needs to be ready by mid-
May.
Nd: No, we do not see a timing problem. There would be a problem, however, if this issue were to be resolved
without any prior tug of war and without a last-minute bargaining deal.
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| Keywords: evolution of the Greek debt crisis, attacks on the EURO currency, managing the EURO currency crisis, rescuing the EURO, future of the EURO, the feasibility of the EURO currency, managing the Greek debt crisis, survival of the EURO, introduction of the EURO |