Europe sovereign debt crisis: A lot of bad ideas, a few good ones.

 “Europe is as full of bad ideas as it is of bad debts.

How Bad Ideas Worsen Europe’s Debt Meltdown

Conventional wisdom says that sovereign defaults mean the end of the euro: If Greece defaults it has to leave the single currency; German taxpayers have to bail out southern governments to save the union.

This is nonsense.

U.S. states and local governments have defaulted on dollar debts, just as companies default. A currency is simply a unit of value, as meters are units of length. If the Greeks had skimped on the olive oil in a liter bottle, that wouldn’t threaten the metric system.

When the era of wishful thinking ends, Europe will face a stark choice.

  • It can have a monetary union without sovereign defaults.
    That option means fiscal union, accepting real German control of Greek and Italian (and maybe French) budgets. Nobody wants that, with good reason.
  • Or Europe can have a monetary union without fiscal union.
    That would work well, but it needs to be based on two central ideas: Sovereigns must be able to default just like companies, and banks, including the central bank, must treat sovereign debt just like company debt….. ”

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