The Greek Example and the Dangfers for Europe

I have just spent a week arguing against Greek economists who appear to believe Greece and Greeks have a God given right to spend more than they earn.

There is a real risk that other states are in a similar position and likely to fall victim to a collapse of confidence in their ability to repay debts and pay for new borrowing requirements . Unless convincing rates of growth can be established lenders are going to take fright in present turbulent markets.

Unfortunately for Europe, the recent European Central Bank decision to accept Greek junk bonds as collateral implies a policy that would place Eurozone Institutions at risk. Perhaps it would have been wiser to let Greece remain in the Eurozone but permit it, (a small government) to go bankrupt. the resulting disturbance and pain would have been inconvenient but would have been a salutary lesson for others following the Greek example. Greece would, of course have learnt, the hard way, the consequences of profligate expenditures based on what has essentially been a government run Ponzi sheme.

Any assistance for Greece, must now take into account the implications for the whole Eurozone, and its institutions. Europeans now have to impose controls on monetary and fiscal strategies and establish effectiive penalties for a Eurozone Member State's failure to act responsibly. Anything less courts disaster.


Link:
http://online.wsj.com/article/SB10001424052748703338004575230012501499240.html?mod=djemEditorialPage_h#articleTabs%3Dcomments