Stability of General Equilibrium and Monetary Policy: Baby Steps

Must-Read: Karl Whelan: Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean: "Neither [John] Bruton nor [Simon] Nixon explains which eurozone rules Greece has been breaking that necessitated threats of expulsion...

...People can point to the under-statements of Greece’s debt that pre-dated the current crisis. But these events are long in the past and did nothing to contribute to the escalation of the current crisis this year. You can also point to the Stability and Growth Pact rules but keep in mind that these are being broken by the majority of euro area members. Nixon explains the real rule that Tsipras has broken:

Like Italy’s Matteo Renzi, France’s François Hollande and others before him, Mr. Tsipras has had to learn the rules of the European game: that you don’t gain leverage over other leaders simply by winning elections--they have all done that--but by winning their respect by showing you have the capacity to make tough decisions at home.

This gets it about right. The rules that Tsipras has broken are unwritten rules that reflect the power the euro area’s creditor states have to ruin any member states that don’t do as they are ordered. Accepting such a large loan from these states in 2010 was probably the biggest mistake in Greece’s economic history. Indeed, I would bet most Greeks wished now there really had been a no-bailout rule.äuble-land-where-rules-mean-what-wolfgang-says-they-mean-f0f327fa8a6d