Greece is currently in the throws of anquish as it looks at the cliff edge of falling off the eurozone.
Why did all these contries ban together and create the Eurozone in the first place. They were trying to compete against the strength of the U.S. dollar. They had a dream of becoming world super-power and world dominant economy. For a couple of years it was going great, but now the problems are showing up and we look back to why contries have their own currency.
Before currency existed, there was gold. Gold has consistent value all over the world (give or take a bit of transportation costs). This worked well for global trade.
After a while they got tired of lugging gold all over the world to make a transaction, so they resorted to gold backed securities. The countries would keep the gold in the bank and issue notes representing the gold. That is why Fort Knox exists - to hold all the gold which is to back the U.S. Dollar.
After a while, countries gave up this idea of having a gold backed currency. One very strong example of this is the hyper-inflation in Germany. This happened because the government took liberty to print money as their way to finance their activities rather than taking on debt or taxation. This type of problem has also happened in South America multiple times.
Over time, hopefully countries are begining to wisen up and realize that printing to much money destroys their country. It is a lesson that a country can learn - because it has to face its own consenquences of being irrisponsible with its ficsal policies.
That is the exact problem with one Eurozone currency. Countries do unwise fiscal acts like Greece's deception to the rest of the world about its actual debt level, and they expect the other countries to bail them out. Greece for many years was riding of cheap debt that was offered it because it was part of the Eurozone and it began to finance many of its activities using increasing levels of debt rather than taxation. It was spending more many than it was making off its citizens and going deeper in the whole as a result. They were able to keep doing this for a sustained period of time because the rating agencies such as Moody's still gave them good debt ratings because they were part of the Eurozone.
This is an example of disconnect between individual countries making fiscal policy decisions, and the Eurozone as a whole having to take responsiblity for those decisions. Now the rest of the world is realizing how fiscally irresponsible Greece has been over the past few years (much like Germany was back in the 1920's), and they want to have no part of it. Germany had to learn it lesson and get it's hand slapped by the rest of the world. Now it is the strongest economy in Europe. If Germany was not shielded from the consequences of its actions, why should Greece be?
I know that the bleeding heart sociallists amonst us do not want to see anyone suffer. However, there has to be some balance between helping people think for themselves and act wisely, and giving a helping hand. I do not hear stories of rampant deaths occuring in Greece because their current crisis.
We should let Greece spread its own wings and figure out how to fly on its own again. It it the oldest country in europe - I think that it can draw on its years of wisdom to figure out how to handle itself in this situation.
Sunday, June 3, 2012
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