Sunday, September 18, 2011

Greek American thoughts

This Economist article seems to imply that the “proper” diagnosis to Greece’s problem is not solely in its profligacy but also the absence of a “proper” political union. The implication is that if there is stronger political will in backing Greece then the uncertainty surrounding the crisis would not be as extensive as it has been and its contagion effects would have been smaller.

The United States is a political and monetary union. States can be profligate but is there really an implicit guarantee from the federal government that states are “too big to fail”? This does not seem to be the case as NYC itself has been on the brink of bankruptcy and no bailout was forthcoming from the federal government. This is also the case with California which has flirted with near bankruptcy for a while. Political union itself therefore does not appear to be a necessary condition for the political will to bail out the profligacy of states. In fact it can be argued that most of the country was ignorant or had more issues on their own plate to pay any attention to the problems of other states.

What’s different about Greece as a nation-state in the European Union and California as a state in the United States? Unfortunately, as they say - don’t know much about history - nor politics of U.S. states but it seems to be that the major difference is that states are not allowed to borrow on the open market. (Is this right?) Certainly, there are no California bonds except perhaps education savings bonds but is not the same as borrowing for general use.

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