Christine Ries is an economics professor who studies world markets and currency. She says the United States may actually benefit if the euro ruptures.
Greece will be getting a new/old currency very soon. Elections results (and riots) in Greece and France sealed it! In fact, throughout Europe, voters are strongly rejecting the German bargain – German taxpayers will bail out and subsidize the spending of other European governments if voters in those countries agree to "austerity." Austerity means reducing government spending and shifting a large share of the workforce out of government jobs and into the uncertainty and discipline of employment in the private sector.
Some of us have always been pessimistic about the long-term sustainability of the Euro. The habits of the European countries are deep and diverse. Voters’ identities as French, German or Greek are not easily subsumed into identities as “Europeans.” The German psyche was permanently scarred by the hyperinflation of 1923 and Germans reliably vote against any government program that creates inflation and currency devaluation.
One reason the Euro was formed was to force other European countries to adopt German habits of productivity and responsibility by tying them to a common currency controlled by the inflation-hating Germans. Denied the option of inflation and currency-devaluation as a solution to lack of restraint and declining productivity, countries like Greece and Italy would be forced to adopt pro-growth policies and reduce government spending.
The other reason for creating the Euro was that, after 1970, voters in the U.S. no longer demanded polices that kept U.S. inflation low and the dollar strong.
The world economy needs a stable currency that retains its value. When the U.S. monetary authority failed to provide it, traders and investors around the world looked to create the Euro as an alternative to the dollar.
Old habits die hard and government employees and unionized workers in Greece, France, Italy and elsewhere will not develop German habits. Through elections, demonstrations and riots, they demand the pay and benefits to which they’ve become accustomed. They refuse to "reform." And German taxpayers refuse to continue to write blank-checks to younger workers in other countries who retire at 52 or 55.
Greek banks will fail soon because depositors know that their Euros will soon be replaced by Euro-drachmas, drachmas or something worth much less than the Euros they hold now. The media is daily reporting plans being made to switch accounting systems and recreate the drachma. So, Greeks are taking their Euros out of banks and tucking them into mattresses until the switch has been made. We are watching a self-fulfilling prophecy that hasn’t much longer to play out.
Other European countries refusing to adopt pro-growth austerity measures that reduce the size of the public employee sector must follow the same path. Once Greece takes the plunge without devastating consequences, others will surely follow. As I write, Spain is providing the largest bailout in its history to one of its major banks.
The U.S. dollar will, by default, reclaim its monopoly as the world’s currency and that means even lower interest rates and borrowing costs for Americans and our government. I leave it to the reader and the voters to determine whether this is good for the United States – or not.
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