Damn Greeks (or Why Germany Never Wanted EMU in the First Place)

With Apologies to Emmanuel. But this is the point of your no comment policy, right?

Otmar Issing explains why the EU cannot afford to give Greece a helping hand: "Participation in Emu brings huge advantages. The benefits of joining a stable economic area are greatest for countries that were unable to deliver such conditions before. Thanks to the euro, Greece has enjoyed long-term interest rates at a record low. But instead of delivering on its commitment at the time of entry to reduce public debt levels, the country has wasted potential savings in a spending frenzy. The crisis with which it is now confronted is not the result of an “external shock” such as an earthquake, but the result of bad policies pursued over many years. Bailing out Greece would reward such behaviour and create moral hazard of a dimension hardly seen before.

Damn Greeks. When I wrote my book on EU monetary politics, I argued that serious conflict of this sort was the inevitable consequence of EMU. Or maybe I took that out of the conclusion because everybody thought I was nuts. I did publish a paper that no one has ever read which nicely explains why German monetary authorities hated EMU as well as how they tried very hard to prevent it or at least limit membership to the right countries. It is the only game theoretic model I have ever published. Turns out it is spectacularly correct.