Them Are Fightin' Words

Currency in Crisis

The debate about Greece's future in the monetary union is mis-framed and this leads to faulty analysis by investors and policy makers.     Even if European integration is incomplete, and there is no fiscal union, members of the monetary union should be thought of as if states in the United States in many important ways.  Joining EMU should be just as irrevocable as joining the USA.  

If New Jersey's inflation runs above New York's, we don't say that the New Jersey dollar is over-valued against the New York dollar.    We do not say that New Jersey should devalue.  When a US state has financial difficulties, such as when several states defaulted in the 19th century, or when the largest state in the union issued its own IOUs more recently, there was no effort to evict them from the union.

On the contrary, the war that cost the most American lives remains to this day the Civil War.  We call it the Civil War because the North won.  It could have been the war for southern independence.   The North's victory led to the maintenance of the union.  

German finance officials are wrong to try to turn the Greek election into a referendum on membership in the monetary union.    Greece made their choice, as much as Illinois did in 1818.   They chose monetary union.  Ironically, it was the German people that did not chose.  It never held a referendum there, plebiscite or otherwise.   

There have often been parallels drawn between the US post-Revolutionary War financial plan that included nationalization of the state's debts and what European officials ought to consider.  "Europe needs an Alexander Hamilton", many said.   Yet in order to make space for Hamilton, Europe may need a Lincoln and his commitment to Union.  

If the EU officials, ECB officials and German officials embraced this commitment to union it would help stem the hemorrhaging of confidence.  The international gatherings over the next several days would be timely forums to get the message out:  the Union prevails.  What is happening is a debate within the union about how best to secure fiscal stability and competitive economies.