Monday, 25 June 2012

The euro should now be put to the sword

" Greece must default and leave the euro. Writing in Le Monde diplomatique, Costas Lapavitsas, professor of economics at SOAS, explains: “Greece needs to stop chasing its tail by seeking to service an unsupportable debt… default ought to be followed by the reintroduction of the drachma.” Yes, there would be short-term economic turmoil, but it has to be better than endless suffering. Formal bankruptcy is the financial solution to a financial problem: Greece’s insolvency. Will it happen? Not if self‑serving EU leaders and their Brussels flunkies have anything to do with it. Like members of the Flat Earth Society, they cling desperately to a vision of the world that no longer bears scrutiny. The dream of a United States of Europe has turned into a nightmare, but confronting reality is too terrifying for them to contemplate. In the absence of voter approval for irreversible fiscal union and a perpetual conveyor belt of taxpayer funding from Stuttgart to Salonika, how does the euro survive? For if Greece goes, what about Spain? Many Spanish banks are bust (their property portfolios are a horror show). Madrid cannot afford to rescue them, because its borrowing costs are too high. So the European Central Bank is lending cheap money to the Spanish financial sector so that it can recycle the cash into Spanish bonds at below-market rates. It’s like a drowning man throwing a lifebelt to a sinking ship: both are doomed."

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