Grexit: It’s a question of how, not if, Greece will leave the euro

Over at Foreign Exchange, I’ve got a post up on the euro. Short version: all signs now point to a Greek exit, and Christine Lagarde has given a statement indicated there is no turning back.

It sounds as if she’s essentially saying to the Greeks and others in Europe, you’ve had a nice time and now it’s payback time.

“That’s right.” She nods calmly. “Yeah.”

And what about their children, who can’t conceivably be held responsible? “Well, hey, parents are responsible, right? So parents have to pay their tax.”

That fits entirely with the strict language she used when I interviewed her in August:

She knows this is a tough sell. “You first have a period [after making cuts] where growth takes a hit and goes negative”—and with that come unavoidable human costs in lost jobs and social services. Political feuding over controversial cuts will only make the pain worse. How should ordinary people cope? She pauses. “It takes courage.”

What are the implications of this tough stance:

Hypothetically, should Germany refuse to loosen the terms of its loans to Greece, the IMF could offer a bit of rope on its loans to Greece that would allow a left-wing Greek government to save face without upsetting the eurocart. But. as those of us who have followed her closely expected, Lagarde has unequivocally squashed that possibility in her remarks tonight.

Read the whole post here.

Germany’s Ireland Calculus

Short post over at Foreign Exchange on Germany and the Irish bailout:

…the Ireland debacle is just the latest episode in an ongoing conversation about Germany’s place within the eurozone, about the German public’s frustration with cleaning up after its weaker neighbors and about the frustration of other major EU players with German intransigence.

Here’s the question: is this particular incident (the threat to gauge the bond markets to appease to German public followed by a five year compromise that spares the bondholders with promises of stricter rules in the future), a victory over the Germans, or a victory for them? was Angela Merkel made to compromise, or was she bluffing all along? I’m guessing it’s the latter…

Go read the rest.

Germany’s Radical Center

I’ve been off the blogs of late because of a Very Exciting Project that I’ll discuss when it’s ready. But I’m back, with a post on Foreign Exchange about the so-called German miracle:

The econo-world has been abuzz about Germany because the country has done a remarkable job outperforming its first world peers as it emerges from the Great Recession. Last quarter, it went on a 9% growth rampage. This year, it’s expected to grow over 3%, compared with less than 2% for the most of the developed world. When econo-wonks process those stats, they try to claim the success story as a victory for their preferred models, while constructing any downsides as failures of the other side. They are wrong to do so.

Instead, the argument I make in the post is that the German model is a happy historical accident. And as you may know, I enjoy arguing that history matters. But I also resist the notion that history is everything. So while I think it’s important to understand the present-day German economy as a product of its history, I don’t the like the argument–which smart people still make–that present-day Germany should make its decisions about the future on the basis of some guilt about its past.