My letter to the NY Times re: Europe's Austerity Mirage

Re: Europe's Austerity Mirage by Jean-Paul Fitoussi

Dear Sirs:
Professor Fitoussi gives an excellent explanation of the dilemma facing Greece (and others, of course), but his prescription would fail because he misunderstands the cause of the crisis. The problem is NOT that the euro is a "common currency without a sovereign", so his prescription of asking the ECB to issue eurobonds will do nothing to effect the real changes needed. Eurobonds would cause moral hazard and merely forestall necessary adjustments. Furthermore the professor is wrong to categorize as "austerity" measures such as reducing the size of the predatory government class, selling state assets (that the state should never have owned and controlled in the first place), and reducing the regulatory burden. These measures would liberate the wealth producing class and allow the Greeks to accumulate capital instead of allowing the welfare state to consume it. Professor Fitoussi is correct that Greece does not control the euro and cannot depreciate. Therefore, its only options are to remain on the euro and accept the pain and possible civil unrest that comes with massive price deflation or return to a depreciated drachma and default on its euro-denominated debts. There are no other options that are acceptable to the rest of the eurozone countries, who know that Greece just cannot pay its current euro debt and will not throw good money after bad.

Patrick Barron