21 May, 2010

After a few short years, I have entered a parallel universe

A few years ago, it seemed that everyone was castigating Americans for not saving enough money. Castigating America for its deficit spending was old hat; what was new then was the castigation of Americans for imitating their government. The worrisome figure was that personal savings had declined to such a low rate that it was negative. Tut-tut, they said.

Already a year ago, the tune had changed. Our rate of personal savings had grown positive, and then to 3-4%, and this was deemed bad in a recession. What I found odd about this is that 3-4% isn't an especially high rate of personal savings; other nations (previously held up as models of fiscal enlightenment) have a rate of 10% or so, maybe higher. But Americans who were saving were now being unpatriotic for prolonging the recession. (Where did I hear criticism of that attitude before? When another guy was president, and encouraging us to spend our way out of recession? Nah, couldn't be.)

Well, now the rage is indeed being directed at the savers. I just heard a story on the BBC blaming the Germans' fiscal responsibility for the crisis in the Euro, and now a Washington Post columnist is doing the same.

The first sign to me that the Euro was not such a great deal for all the countries involved came when Italian prices doubled when switching to the Euro. Most of this was shenanigans (the public bus system of Milan being an outrageous example) but the shenanigans were helped along by Italian indifference ("we hate our politicians and they hate us, so nothing they do can be good for us, so we won't pay attention to it") to the conversion rate (the official rate of ~2000 lira to 1 Euro become a practical rate of 1000 lira to 1 Euro, effectively doubling many prices).

I think the Euro is a great convenience, but if Pearlstein and the BBC are right about how German fiscal responsibility contributed to the crisis, then I'd say that the problem is not German fiscal responsibility. Rather, it's the fact that the European currency is de facto independent of European governments' fiscal policies. The solution would be the restoration of the lira, the drachma, the franc, the mark, etc. — all while keeping the Euro as a second legal tender.

I'm sure there's a reason the people in charge of Europe don't go with this solution, which seems eminently sensible to me. I just don't see what that reason is.

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