Reading Gerard Baker’s speculations on Germany leaving the euro I got somewhat bored halfway through. The solution was as obvious as the fact that Mr. Baker, and perhaps most of Europe’s luminaries, are blind to it.
Europe is a hodge-podge of buried irredentist sentiment and maximalist territorial dreams. Do you want Greek discipline in paying its debts? No problem, force it to put up the islands that Turkey has wanted for a very long time and suggest that insufficient fiscal discipline will lead to an auction sale of the territory collateral complete with loss of sovereignty. Not only will this instill fiscal discipline in countries that have to put up parts of their own territory, it will induce their neighbors to save up “wishful thinking” funds to bid the real estate up high enough.
Is the UK spendthrift? Have them put up Gibraltar as collateral and watch the Spanish suddenly start saving like mad in hopes of an auction. No doubt Moroccan finances would tilt towards fiscal surpluses as well.
The utter national humiliation of dismembering your own country to finance social spending should set things right. And if not, well, other hands would take over their country’s ultimate assets, national sovereignty.
16 thoughts on “It’s easy to have a disciplined euro, but nobody would want to join.”
I really like the idea! But what is it really worth in an age of fiat money?
I think that the sale of the Greek Islands, and the fate of the other half of Cyprus is a moot point. With Greece functionally bankrupt, its military taking part in the general strikes to protest the fact that they are bankrupt, with the rest of Europe mickle pissed at them for being bankrupt and trying to drag the Eurozone down with them, and after decades of hostility to the US [combined with the pro-Muslim current regime here]; if Turkey decides to just take thise disputed islands and the rest of Cyprus, no one is going to say or do diddly.
Subotai Bahadur – Turkey’s maximalist ambitions reach to the gates of Vienna. It’s not anything that’s seriously considered right now but that’s the high water mark of potential expansion without going into ‘new ground’.
If you think that we’ve got proliferation problems now, just wait until the raft of new entrants into NATO that could go nuclear find out that NATO isn’t worth anything in terms of real protection. The problem of a nuclear armed Bulgaria, Romania, or Poland is not something that anybody really wants to add to the world’s national security plate.
Thus I don’t agree that nobody would care. A great many people would care and the stock markets would reflect that, along with the next year’s military budgets all over Europe.
You assume national self interest on the part of European leaders. This has not been in evidence.
There is an intermediate step that could be tried- countries that are not in compliance with the requirements of the Stability and Growth Pact could lose voting rights in the various EU institutions.
Does that mean we have to put up Alaska for sale back to the Rooskies if we continue Obama’s insane spending spree?
BBC – I assume nothing more than a lust for power among the national political class. That’s always been in ample evidence.
The practical effects would be to create a very interested group of voters who would presumably not want to be shopped around as far as their legal rights are concerned. It would create a new regional interest group that would be on the no spending side of all debates and would create a route to power for fiscally responsible national politicians.
Rosignol – Your proposal is actually on the table and probably will not work. Voters are not viscerally attached to the EU and the EU does most of its work behind an alphabet soup fog of unaccountable groups. Every Greek understands living under Turkish law. It’s a national nightmare which is what would make the proposal work.
William H. Seward – Well, the Gadsden Strip at least.
I suspect that if we were to be straitjacketed into something like this (say as a condition of the mother of all IMF bailouts) we’d be required to put up California. The PRC would probably be high bidder if we didn’t get our act together. The huge reduction in rights on the table at that point would change the makeup and the outlook of our elected officials.
William H. Seward, Obama would cheerfully sell Alaska to the Russkiys. And any other part of this country to finance his power grab.
On a related note, the US debt-bomb is not as bad as it seems because all most all of the property owned buy the government is not on the national balance sheet. 90% of Alaska is owned by the fed gov. TVA is not on the balance sheet. Plenty more stuff like that. Margret Thatcher balanced the British budget by selling off many gov owned enterprises.
It would be nice to contemplate such a scheme if this were the historical norm. But the fission of Czechoslovakia notwithstanding, war is the normal result when people demand to move national boundaries. And even in the days of monarchies and duchies, kings generally went to extreme lengths to avoid, even in effect, selling their own territory. (Selling the actual or threatened use of your armies and/or diplomats, so that Country B can take land from Country C, was a more common way in which a territory was sold.)
To work down the US debt I would sell Washington, DC to the ChiComms. Whoops. They already own it.
DWPittelli – I agree that actually selling your territory is a fate that most every nation will work hard to avoid. That’s why attaching the sovereignty rights to significant territory as collatoral for a major IMF loan makes some sense. No government could survive the after math of the loss which makes the needed structural adjustments seem easy by comparison.
Right now, in contrast, doing the structural adjustments looks hard and there’s great temptation to not do them or to cheat on the structural reforms. When the anti-reform protestors in the street are effectively asking for the sale of part of the nation’s territory, I think it’s safe to say that you’re going to have a lot smaller/fewer street protests.
The genius of this approach is that loss of territory is associated with significant political pain. In an era of fiat money, that pain can long be hidden. Hiding the pain tends to lengthen the term of office for the irresponsible. Governments tend to fight for the right to be irresponsible. See the US south in 1860-1865 as an example.
The bad news: Mexico under Benito Juarez defaulted on debts back in 1860, and France invaded. The US, at the end of the Civil War suggested to France that such behavior would not be permitted. France withdrew, Maximillian was executed, and the creditors of Mexico were not paid.
The purpose of fiat money is to hide pain. I don’t expect governments will accept responsibility by any means.
Yes, but when the default occurs and it’s actually time to give up the territory, it won’t happen. Few politicians would rather be known as the guy who lost territory to another country, than the guy who forcefully or cleverly held on to the territory by placing or keeping troops on it, or allowing “protesters” or thugs to occupy it instead. And few politicians in Western creditor countries would rather use military force (i.e., shooting people) to take a foreign territory, than accept jawboning and workout plans no different than could have been obtained without the territorial deal. And since everyone knows this, putting a territory on the block is not a useful stick to coerce repayment.
But who’d buy California?
You do understand it will take a war for each of your solutions. The Euro and it’s zone are products of a continent that has had it’s countries fight endless wars for territory. A thousand years of that and you might try something new too.
The Euro is probably unsustainable but you will find all fiat currencies suffering through the next few years. Having your own currency makes it much easier to print money as the Greeks and the Spanish are now finding out. Having the currency of record like the US makes even more fun things possible.
The wealthy have been hoisted on their greed and now they intend to force the rest of us to pay for that. Austerity will not sit well with the socialist masses in Europe and there will be blood. I expect worse things for the US as the rot is deeper, the control stronger and you all have guns.
Gold beaten down to 1230 today is rebounding nicely.
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