Greek progress leaves long-term euro fate murky

Suppose for the sake of argument that the buyback auction launched this week by Greece is successful, that the country gets its bailout funds and meets all the commitments it has made to reduce its deficit and then actually gets its debt down to 124% of GDP by 2020 as planned.

Then what?

By then Greece will be full of workers as productive as Germany? By then a euro primarily based on the prowess of the world’s fourth-largest economy will make Greek exports and tourism competitive? The problem of export prices identified by Ithurbide has not been solved.

What is to prevent the cycle of misaligned current accounts from beginning again? Will Germans suddenly turn into big spenders and the Bundesbank countenance a slightly higher rate of inflation?

Merkel has said the EU needs a greater degree of political and fiscal integration if the euro is to survive. But the steps she has envisioned are not big steps and Germany balks in the meantime at the more pragmatic financial measures urged by Stiglitz.

Greek progress leaves long-term euro fate murky – Darrell Delamaide’s Political Capital – MarketWatch.

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