On holiday…

I have been coming to Greece for years and every year for the past three years there has nealy been a currency and banking crisis before we arrive (last year only foreign Visa cards worked at the ATM)… I have no wish to open the Euro debate while on holiday I just note the past which is one of the reasons I like economic history:

“Throughout the latter half of the 1920s Germany was living on borrowed time. Foreign debts, many of which called be recalled at short notice, were allowed to pile up to an extent which, in view of the industrial development of the country and high tariff barriers imposed by the creditors, could never be justified by her actual or potential export earnings. How Germany was supposed to meet her obligations once capital imports ceased seems never to have been seriously considered by creditors, a lack of foresight difficult to explain. Even had there been no economic crisis or check to lending at the end of the decade it was inconcievable that Germany could have gone on absorbing such large capital imports for much longer. The alternatives were limited; any attempt to secure an improved external balance would have required severe deflation and even ths would hardly have been sufficient. It is possible that the Germans shrank from positive action to demonstrate their aversion to the obligations imposed by the Aliies. That the Allies should have attempted to conceal the impossibility of the burden, at least in the short term, by pouring capital into Germany speaks volumes for their economic wisdom”

Derek Alcroft, From Versailles to Wall Street, p257

From Reuters June 15:

But the Washington-based Fund, which Europeans value for its rigor but had fallen out with over its demands they forgive Athens some of its debt, will not disburse any of its money yet. It still wants the euro zone to offer sufficient extra detail on possible debt relief in 2018 to let the Fund calculate that it will be enough for Athens to sustain its debt in the long run.

The standby arrangement was a second best solution to a full debt deal, Lagarde said, but it would buy the euro zone, Greece and the IMF time to work out the details for next year.

A senior IMF official said they were still not satisfied the euro zone was ready to do enough on debt relief but had joined the bailout anyway as Greece risked being in difficulty again.

To accommodate the IMF’s need for more specifics on debt relief, the euro zone finance ministers said in a statement that in 2018 they would be ready to consider extending the maturities and grace periods of their loans to Greece by a range from zero to 15 years. The average maturity now is 30 years.

But they did not go any further than that and the IMF said it was not enough to calculate Greek debt sustainability.

I therefore may read this on my holiday:

Once upon a time, in the 1990s, it was widely agreed that neither Europe nor the United States was an optimum currency area, although moderating this concern was the finding that it was possible to distinguish a regional core and periphery (Bayoumi and Eichengreen,1993). Revisiting these issues, we find that the United States is remains closer to an optimum currency area than the Euro Area. More intriguingly, the Euro Area shows striking changes in correlations and responses which we interpret as reflecting hysteresis with a financial twist, in which the financial system causes aggregate supply and demand shocks to reinforce each other. An implication is that the Euro Area needs vigorous, coordinated regulation of its banking and financial systems by a single supervisor—that monetary union without banking union will not work.

Although this is one of the best books I have read in while… Caio for 2 weeks from Skala Eresou, Lesvos…


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