Any article that starts a discussion of the Eurozone crisis by quoting Kindleberger should be not just read, but studied. A little economic history goes a long way to help understand the limited options to solve the current credit crisis.
Michael Pettis even points to the dangers of lack of a solid academic grounding in international finance:
These worries are shared by many of the commentators, who generally understand the danger of accumulating unsustainables imbalances, Here are some excerpts:
" Syriza’s victory in Greece has reignited the name-calling and moralizing that has characterized much of the discussion on peripheral Europe’s unsustainable debt burden. It is pretty clear, and obvious to almost everyone, that Greece simply cannot repay its external obligations, and one way or another it is going to receive substantial debt forgiveness. German newspaper Zeit‘s interview with Yanis Varoufakis was entitled “I’m the Finance Minister of a Bankrupt Country”.
"Even if the question of who is to “blame”, Greece or Germany, were an important one, the answer would not change the debt dynamics. It would take the equivalent of Ceausescu’s brutal austerity policies in Romania, which were imposed during the 1980s in order for the country fully to repay its external debt, in order to resolve the Greek debt burden without a write-down. Given that Ceausescu’s policies led directly to the 1989 revolution, which culminated in both Ceausescu and his wife being executed by firing squad, the reluctance in Athens to imitate Romania in the 1980s is probably not surprising.
There is an enormous economic cost, not to mention social and perhaps political, to any delay in reducing Greece’s debt overhang which imposes rising financial distress costs and increasingly deep distortions in the institutional structure of the economy over time. And the longer it takes to resolve, the greater the cost.
...Dragging out the restructuring process will impose far greater long-term costs on the Greek people than they think. While it is usually pretty easy to guess what the ultimate deal will look like within the first few days of negotiation, it still takes years of bitter arguiments before getting there. "
We are indeed living in dangerous times.
Mariana Abrantes Sousa
Better read the full article and comments!
Pettis' original article http://blog.mpettis.com/2015/02/syriza-and-the-french-indemnity-of-1871-73/
FT Alphaville comments http://ftalphaville.ft.com/2015/02/06/2113951/michael-pettis-explains-the-euro-crisis-and-a-lot-of-other-things-too/#respond