[Atropos]

I really don't get the amount of hate and derision the European Union is always getting from US commentators. Culturally and geographically, for example Finland and Greece do not have much in common - yet Finland is willing to help them out, despite the "NO BAILOUT" clause explicitly implemented in the construction of the eurozone.

Meanwhile the USA has neighboring countries like Mexico or Cuba with huge problems like drug wars or lack of democratic elections (Cuba only) and which are poorer GDP/capita wise than countries like Poland, which were practically communist colonies of Russia until 1990! Sorry but it seems to me that the European Union is much more beneficial to the European continent than the USA for the American continent.

[dageshi]

The rest of europe bailed out Greece due to forced self interest, they shared the same currency and effectively the same banking system, had they not bailed out Greece the repercussions would have found their way back to all the other countries inside the eurozone in short order.

If you share the same currency and banking system you end up being responsible for each others debts whether you liked it or agreed to it in the first place, the "NO BAILOUT" clause was effectively worthless and irrelevant.

[Atropos]

That may be the official US/UK media narrative, but it is nonsense to anyone who looks at the underlying data. Do you realize that a restructuring of Greece debt has already happened with Greece private creditors incurring around 53.5% face value losses? And guess what - the Eurozone is fine. Furthermore Greece GDP and banking is tiny compared to the Eurozone. Does sharing the same currency mean that mean that the USA is forced to bail out the city of Detroit?

If the mantra "Same currency - responsible for all debts" was true, it would be impossible to explain why the yields of German/Austrian/Finnish bonds are trading at a vastly different level than the Italien/Spanish/Portuguese etc... bonds!

[jpollock]

It's not about Greece, it's about Greece, Spain, Portugal and Italy and then possibly France.

[dageshi]

It was the precedent that mattered not the size of the Greek economy, in the same way that the size of Lehman brothers in the US didn't matter individually but the precedent that the US government would no longer write blank cheques to bailout failing institutions did. With Greece the precedent was set that what "NO BAILOUT" actually meant was "NO BAILOUT" if the problem is small enough to not impact anyone else.

[waps]

I think the big elephant in the room argument is right. They legislated their debt out of existence, and ... the market didn't care.

So the US can do the same, with the same result. Declare all US debt/treasuries to only have 50% of the nominal value. Immediate result : large drop, followed by recovery. Longer-term result : nothing.

So the Cyprus and Greece crises made this a valid policy option. It doesn't look like it will be necessary any time soon, but it has gone from inconceivable to "will happen at some point in the future".

The market doesn't actually want you to pay back your debt. They care, but not enough for real consequences for the debtor. Why ? Simple : there's no other place to put money if you have very low interest rates everywhere.

[pessimizer]

>it would be impossible to explain why the yields of German/Austrian/Finnish bonds are trading at a vastly different level than the Italien/Spanish/Portuguese etc... bonds!

Only if one doesn't understand the difference between a debtor and a lender. The common currency helps the core, and hurts the periphery. Where's the contradiction?

[james1071]

I think you have got that the wrong way round. The best option for Greece was to default, but instead Greece was sacrificed to save the Euro.

[krrrh]

There are so many automatic stabilizers built into the US economy which move wealth from some states to others when economic disruption occurs (stuff like unemployment insurance, military spending, federal minimum wage laws, social security, Medicare, DOE transfers, etc) that you rarely see explicit bailouts of failed states in the USA because they're mostly unnecessary. The EU simply has nowhere near the fiscal integration of the US, so member states can really go off in their own direction despite all the supposed safeguards such as Maastricht.

I get that you're pointing out that culturally Finland has less in common with Greece than Oregon has with Louisiana, but that was not always the case. The US just has had the benefit of a couple of hundred years of deep integration since the Louisiana purchase. Cuba is not part of any political association with the US, so naturally it can't be compared.

Also... The US did bail out the Mexican government and save it from default in the 1990s, quite quickly and decisively. The fact that most people don't even remember that, and yet so much ink has been spilled and so many teeth gnashed over whether, or how, or whether to break up the union instead says a lot about the fragility of the EU (to be expected of course, it's still such a young institution). The integration and benefit to the states in the US has been enormously successful. Many would like to see the EU get there but it is still more correctly analogous to NAFTA which even though it was only a few years old and much less ambitious, played a big part in justifying the Mexican bailouts.

http://en.m.wikipedia.org/wiki/1994_economic_crisis_in_Mexic...

[zurn]

Actually Finland has done a lot to trip Greece over (demanding collateral in exchange for loan guarantees, just making their liquidity situation worse).

The whole thing was just about the debtor bloc trying to save their own ass while imposing harsh austerity on Greece.

[exit]

you may have answered your own question.