Drastic times for Greece

Who holds Greek bonds in Germany? EMU infestation the worst thing was to be feared: unsound fiscal policies of members, wrong decisions on the accession of individual countries, the deficit countries refuse adjustment and monetary policy lacks the sanctions. As a result, the euro area is more and more into a tailspin. Thus proved to be true that the absence of a political union cannot be replaced by treaty.

On the other hand, all of these changes alter the fact that the single currency was therefore a success story in the first ten years of its existence. What can or should be done? The Strengthening of the Stability and Growth Pact, for example through national constitutional debt brakes, is in the stars.

A withdrawal of Greece is practically difficult to achieve. After the announcement of the Greek private investors would drive the banks to withdraw their money assets in euros. Small businesses will feel it most. The result is that the Greek banking system would dramatically destabilized. The adaptation process because of withdrawal from the monetary union is far lighter than the stay in the single currency. Greece must arrive or be taking such a drastic remedy.

Must all care but so clearly all be used to fix the conditions for the Greek budget policy? The assistance is no longer avoidable, drastic requirements on the financial policy of Athens are possible. The involvement of the International Monetary Fund wants to Strengthen the binding nature of these conditions. It must be clear that it is not a pleasure to run into such a situation.

Greece should leave monetary union

In a monetary union, the exchange rate is as an instrument to mitigate different accounts of real economic developments. This can, in principle, on the mobility of goods and factors of production (especially labor) and the flexibility of prices (especially wages) are compensated. Existing in the labor markets of the EU mobility barriers and the lack of flexibility of wages should hinder a market in fitting however.

In that regard, there is already a danger that arises political pressure to put more on transfers to compensate for real economic divergences. All politicians have assured that it will not come as part of the monetary union to additional transfers. The criteria for admission should the Monetary Union and the Stability and Growth Pact guarantee.

How these schemes in recent years, especially in relation to Greece, have been applied, is painfully familiar. Greece should withdraw from the monetary union and reintroduce its own national currency (drachma).

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