To understand what’s happening with Greece
and the Eurozone, think about a dinner party. If you’re cooking just for yourself and your
spouse, it’s easy: you make something you both like. But if you’ve got guests, things
get harder. If you need to accommodate a vegetarian, and someone who is gluten free, and someone
with a soy allergy, your options get really limited. And that’s the problem with Europe’s
idea of having a whole bunch of countries all use the same currency. So Greece’s economy
is in a disaster. A quarter of the population is unemployed, and it has this very high debt
burden. Normally, if you’ve got really high unemployment, what happens is that a country
makes its currency cheaper by printing extra money. That makes its products cheaper on
world markets, it makes it a more attractive tourist destination, and it means that foreign
investors can get great bargains. But if unemployment is really low, a country likes to have an
expensive currency. That increases people’s purchasing power and it keeps prices down.
And in Europe, you have a bunch of economies that are really different. A price of Euros
that’s appropriate for Greece, where they have a 25% unemployment rate is way too low
for Germany, where the unemployment rate is below 5%. And Greece’s problem is that it’s
small, poor, and geographically isolated from the rest of the Eurozone. It’s like the only
vegetarian at a barbeque, except when it comes to currencies, there’s no side dishes. And
so there’s plenty of specific decisions we can second-guess, plenty of things Greece
did and various banks did that we can question, but fundamentally having all these countries
come to a dinner party with only one dish on the menu was a mistake. The euro was a
project that Europe set about on for really political reasons. It was a symbol of their
determination to have peace on the continent, but they didn’t really take the economics
of it seriously. So Greece joins the euro in 2001 and initially, it works out great
for Greece because all of a sudden everyone was like ‘yeah, sure, let’s lend them money.’
So they borrowed lots and lots and lots of euros, except that didn’t change the fact
that their economy is a lot weaker than some of the other European countries. So to really
work, you would need a much, much, much closer union, where you had big financial transfers
coming from the richer places to the poorer places all the time. In the United States,
the poor states like Kentucky, Mississippi, Alabama, they’re constantly getting money
from the richer states like Massachusetts, California, New York, through the welfare
system, through Social Security, through Medicare, through Medicaid. And you know, people may
complain about this or that program, but we don’t dispute the idea that it’s all one country
so money is going to circulate around. Europeans, you know, they just don’t feel that way. Germans
are willing to support poor German people, but they don’t want to support Greek people
with their tax dollars. So they’re kind of like half-way integrated in a way that doesn’t
really work.