Greece and the true purpose of the euro

LARS P. SYLL

The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.

That progenitor is former University of Chicago economist Robert Mundell. The architect of “supply-side economics” is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell’s research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

“They won’t even let me have a toilet. They’ve got rules that tell me I can’t have a toilet in this room! Can you imagine?”

As it happens, I can’t. But I don’t…

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Iceland did not do well. But it did better. Because of sound economic and financial policies.

Real-World Economics Review Blog

In the curious case of the Icelandic economy the admirable economist Tyler Cowen misses the wood for the trees. The situation is simpler than he indicates:

Iceland

A) Thanks to financial machinations of out of control banks Iceland experienced a terrible financial crisis from which it has not yet fully recovered (graph), despite capital controls and the right sizing of debts and devaluation ( Mind:  devaluation does not seem to increase exports. See this recent ECB study, look here for J.W. Mason on this. Devaluation might however direct domestic demand from imported to domestic goods).

B) It did, however much better than, for instance, the Baltic states (and Ireland, see below),

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