Commentary

Bloomberg View


MERKEL'S CHOICE: WIN THE NATION OR SAVE THE REGION
Life is good for Germans these days. Exports are booming, thanks to the crisis-weakened euro and concessions German workers have made in recent years. Unemployment is falling, the economy is growing, and business confidence is near a 20-year high. Such strong performance tends to dull any sense of urgency, which might explain why Chancellor Angela Merkel, leader of the euro area's largest and wealthiest member state, has done little to stem the European debt crisis raging around her.

With Merkel's Christian Democratic Union party struggling to regain momentum ahead of federal elections in 2013, asking Germans to bail out the euro area's more profligate members is politically fraught. Yet a debt restructuring that involves big losses for German banks—with $22.7 billion in loans outstanding, they are the Greek government's single biggest lender—might trigger another financial crisis. Expediency would suggest Merkel find a middle way. She could, for example, endorse a version of the Vienna Initiative, in which private creditors agree to purchase more Greek bonds when existing ones mature. Used in Eastern Europe in 2009, the approach has drawn the support of European Central Bank President Jean-Claude Trichet and the European Union's economic and monetary affairs commissioner, Olli Rehn.

The proposal would give Greece more time to get its debt burden on a sustainable trajectory and banks more time to prepare for a restructuring that may prove inevitable. To give it teeth, Merkel could propose that the ECB automatically stop accepting as collateral the bonds of Greece, Portugal, or any other member state that failed to meet specific fiscal targets within three years.

Such a deal, however, is unlikely to calm markets. Investors would still worry about the impact on banks if Greece failed to fulfill its promises. More importantly, Merkel would be wasting an opportunity to fix the flaws in the euro area that the crisis exposed.

Without some sort of fiscal union in which tax revenue can flow across borders, the common currency puts too much of a burden on economies that fall out of sync. The massive public and private debts of Greece and Portugal arose in part as a result of large trade deficits—deficits that exchange-rate adjustments could have alleviated if the two countries had their own currencies. Now they must undertake the difficult task of restoring competitiveness by lowering wages, even as they cut government spending and struggle with stagnating or shrinking economies.

In what could be viewed as the world's largest currency union, the U.S., automatic federal transfers such as unemployment insurance and tax credits for low-wage earners help the states get through hard times. A supra-national finance ministry could make similar fiscal transfers in Europe, helping to ease the cyclical pain as countries undertake structural reforms.

Fiscal transfers in Europe might not need to be all that large. In the U.S., money from Washington generally covers about 30 percent of states' income shortfalls. Using that rule of thumb, a similar fiscal cushion for Greece would cost about €7.5 billion, or about $11 billion, in 2011. That's 0.3 percent of Germany's projected economic output and less than 0.1 percent of the entire euro zone's.

Tellingly, Trichet, one of the few officials involved who doesn't have to worry about reelection, suggested on June 2 that the euro area consider creating a unified finance ministry, a precursor to a fiscal union. Without a fiscal union, the euro area will see more crises and could ultimately fail as a currency union. That would be a loss for all its members, Germany included. As President Barack Obama jawbones Merkel to be more assertive on the debt crisis, he might want to pose a question: How do you want to be remembered, as the politician who saved your party's chances in the 2013 elections or as the one who saved the euro?

THE DEATH OF AN IMPORTANT CRANK

Cranks move the world; polite, modest, unassuming people with measured views usually don't. Dr. Jack Kevorkian, who died on June 3 at age 83, was a crank and a publicity hog. He also was a hero.

Kevorkian's cause was assisted suicide—the right of people with painful terminal illnesses to end their suffering in the only way possible. Naturally, as a crank, Kevorkian took this too far. When, on their fifth attempt, authorities finally convicted Kevorkian of second-degree murder, it was because he had videotaped himself administering a lethal injection, bypassing the gruesome devices he had invented to enable patients to inject themselves. Then he sent the videotape to 60 Minutes. He spent eight years in prison, winning release only after promising that he wouldn't help people kill themselves.

In a Gallup poll released in May, Americans were split down the middle on doctor-assisted suicide: Forty-five percent said they found it morally acceptable, and 48 percent said the opposite. It was the most divisive social issue in a survey that included questions on gay marriage and cloning.

We don't dismiss the dangers of legalizing assisted suicide, especially the threat of undue pressure on old or sick people or—at worst—the emergence of a new social norm that would make assisted suicide a routine or even prescribed method of dying. Everything possible should be done to make assisted suicide a bad option. In a free country, though, it should be an option. The issue requires no consensus: People should decide for themselves.

To read Virginia Postrel on light bulbs and liberty, and Simon Johnson on Jamie Dimon, go to: Bloomberg.com/view.


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus