Are Europe’s politicians trying to save the euro or sink it?asks Melvyn Krauss, Emeritus professor of economics at New York University and a senior fellow at the Hoover Institution at Stanford University.
… like the three deceased characters in the 1944 Sartre play “No Exit” who are locked in a room together for eternity, there is no exit for the participants in the euro project — no matter what Europe’s politicians do. The pain of leaving would be too great.
When I asked a high-ranking Dutch official if he could contemplate the Netherlands ever leaving the euro, the answer was: “Never — we are making too much money from it.”
“The periodic devaluations of the southern currencies under the old system were really costly for our exports,” the northern official explained. “We don’t want to go back to that.”
The Germans and Dutch are exporters who will not give up the trade gains from the euro just because they are being diminished by bailout payments to the south. Populist politicians in Germany and the Netherlands are missing the most important part of the euro story by focusing exclusively on the bailouts.
The populists are particularly keen to force the private holders of Greek debt (mostly German and French banks) to take a substantial “haircut” for further government aid to Greece. But northern taxpayers might lose their enthusiasm for private haircuts if they realized that it is they who are on the hook for the risk the European Central Bank has taken on. The E.C.B.’s risk is taxpayer risk.
… Why haven’t Europe’s politicians explained to taxpayers that when it comes to bailouts there is no such thing as a free haircut?