Euro Crisis from Long Perspective

by Chidem Kurdas

The European crisis, in progress for years and still showing no sign of resolution, is largely the result of elite hubris. To create the euro and ram it down the throats of populations that, left to their druthers, would have stayed with their old currencies—this was a massive, top-down social engineering project. Continue reading

Emerging Hope in Greece

 by Chidem Kurdas

The Greek economy continues to shrink. With the wider European debt crisis and slump hampering Greek recovery, the recession may persist through 2013.   Amid the grim news, however, there is a small sign that austerity measures are starting to work. Continue reading

Why We Need More Speculators

by Chidem Kurdas

Greek prime minister George Papandreou demands a crackdown on credit default swaps. It’s easy to see why politicians bring up wicked speculators whenever some economic hardship shows up. It’s an old game to put the blame on others to deflect it from yourself.

Middlemen have been successfully pilloried for millennia. Ancient Athenians, faced with rising prices, hauled grain merchants to court some 2400 years ago. Could it be that throughout history speculators have messed up markets, hoarding wheat in ancient Athens and trading dodgy derivatives on post-modern Greek debt?

Indeed, they can become a problem if there are only a few of them. Continue reading

Germany’s Foolish Idea

by Mario Rizzo  

An elementary lesson of economics is this: If the benefits of an action accrue to the agent but many of the associated costs can be shifted to another party, there will too many such actions. 

Consider now Greece. Its welfare state is out of control. The effects of this fiscal problem threaten its bond ratings. It is in violation of the fiscal rules of the European Union.  At the same time, the value of the euro is threatened. The German government is thinking seriously of bailing out the Greeks with debt guarantees to avoid contagion effects.  

So now the problem of moral hazard raises its ugly head. The power of precedent is such that if Greece is bailed out, what incentive is there for other countries to restrain the growth of their expenditures?  

I do not believe that even if Greece defaults on its bonds that the contagion effects would be intolerable. But the main problem is that the unsustainable welfare states in Europe and the United States are, well, unsustainable.  

People like to deny reality when it is unpleasant. This is not just a problem of bad leadership. It is a problem that goes to the heart of the fantasy world the typical voter lives in. But reality bites. Let’s see how it does so in the next few years.

In the meanwhile, we can hope that the German government comes to its senses.