By Simon Johnson
Wolfgang Schauble, German finance minister, has a surprisingly sensible op ed in today’s Financial Times. As we suggested yesterday, first the relevant Europeans should decide if they want to keep the euro – more precisely, who stays in and who leaves the currency union – then policy must be adjusted accordingly.
Mr Schauble is obviously correct that existing economic self-policing mechanisms are badly broken; the eurozone can only survive if there are effective monitors and appropriate penalties for fiscal and financial transgression. He is also right to fear that involving the IMF in Greece would necessarily give the Fund greater rights to kibbitz on European Central Bank monetary policy. Given the fear and loathing expressed for the IMF’s “4 percent inflation solution” (or is it 6 percent?) in eurozone policy circles, you can see why this gives the Greek prime minister some bargaining power – the Germans will do whatever it takes to keep him away from the IMF in the short-term.
But Schauble misses (or holds back for now) on a potentially important point vis-a-vis investment banks. Continue reading