What we’ve learned from the euro crisis, part I

Matt Yglesias serves up a short and partial list, here are some of mine:

1. When the Germans say “no LOLR” they mean “no LOLR”!  Especially when they put it into print.  I already knew that, actually.

2. It is a disaster and a dead-end situation when a country uses its automatic stabilizers in a manner which supports rent-seeking and harms growth.  There is, in a time of crisis, no way out of the resulting trap.

3. The “regulation and labor law will come down really hard on larger firms” approach of Mediterranean Europe is far worse than we had thought, and we thought it was bad in the first place.  I can’t stress this point enough.  It’s cut those countries off from some major sources of growth and technical advance.

4. Don’t borrow in someone else’s currency.

5. Don’t think that “don’t borrow in someone else’s currency” is the only lesson.  Last I checked the Netherlands was doing OK.

6. International coordination doesn’t work very well unless the interests of the various countries are aligned in the first place.  If this is what becomes of the EU, what is our chance to save the world’s fish stocks?  Protect against global environmental problems?  etc.  The EU, and the eurozone, is designed for vague statements of consensus that, when faced with real problems, don’t get the job done.

7. We can suddenly imagine the so-called “first world” splitting into two parts, distinguished by the degree of conscientiousness applied to human capital formation.

8. The French-German marriage was never going to last that long anyway.  Yet without it, how do things get done in Europe?

9. The Mediterranean social welfare state model, based on lots of inefficient regulation, rent-seeking, reckless borrowing, and privilege within the local professions, is neither resilient nor robust.  It is wrong to blame “welfare states,” but it is also wrong to let “welfare states” off the hook altogether.  We’re learning a lot about how not all welfare states are created equal.

10. Don’t have government regulators let the banking system treat all government securities as riskless assets.

11. Hayek really was right about French rationalist constructivism (see chapter one).  I’m not sure there has been a better example in all of human history.

12. I’ll write more on Italy soon and what we can learn from the country in particular.  And I’ve left off some of the now-obvious, such as “no monetary union with a common fiscal authority and bank resolution mechanism,” etc.


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