a great deal useless.pdf
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a great deal useless.pdf

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Don’twasteacrisis,evenifitisbad.TheGreekconundrumandEMUreformDeborahMabbett*andWaltraudSchelkle**‘Neverwasteagoodcrisis’isanoldpoliticalmaxim,butithasrecentlyproveddifficultforpoliticianstoseizetheinitiativeineconomicpolicy.Stressesinfinancialmarketshavereducedthepolicy-makingspaceavailabletogovernments,andforcedpoliticalleaderstofolloweventsratherthanleadingtheway.Itisparticularlygallingforgovernments,havingrescuedthefinancialsector,tohaveitturningthetablesandsettingthetermsoffiscalresponsibility.WhileopinionsaresharplydividedamongEuropeanpoliticiansaboutthebestwaytorespondtotheGreekcrisis,ononepointtheyareunited.Fiscalpoliciesshouldnotbedictatedbythefinancialmarkets.Thisisabasisforapoliticalconsensusonwhysomethingneedstobedone.Itisofvitalinteresttoallmemberstatesthatacountry’spublicfinancesarenotexposedtoattacksforthewrongreason.PaulDeGrauwe(2009)askedtherightquestionearlyon,whenbondspreadsstartedtorise:‘Whyshouldwebelievethemarketthistime?’Interestrateswereonthedeclineandsafeprivateinvestmentshardtofind,sotherewaslittlereasontogetchoosyaboutsomegovernmentbondsintheEuroareabutnotothers.Butevenifacountryisattackedfortherightreason,thetimingandtheconsequencesmaybewrong.ThemanipulationofbudgetdataandtheshadyswapsexecutedwiththehelpofGoldmanSachscanbeseenasevidenceofthedepthofGreece’sfiscalproblems.Butforcingthebesiegedstatetofiscalcontractionmakesitsomuchharder,ifnotimpossibletogetbackonasustainablepath.Thisiswhy,asforfirmsthatarestill‘goingconcerns’,weneedinsolvencyratherthanbankruptcyprocedures.ForEMUasawholeitiscrucialtopreventasuccessionofGreeces,orevenIrelands,giventhatanaccumulationofIrish-styleausteritypackageswouldeventuallyadduptoasignificantmacroeconomicreversal,evenifitisthesmallercountriesontheperipherythatarepickedofffirst.Greecehasfundamentalfiscal(andeconomic)problemsthatitneedstosortout.Butthisholds,tovaryingdegrees,formostmemberstatesinEMU.Andthisisnocoincidence:theinterestinjoiningthemonetaryunionwasbornebythehopethati