Maybe I should start my own responding to Mathew Yglesias blog, where I basically play the acolyte to his pope. Periodically, in such a blog, to keep myself honest while keeping the true meaning of Yglesianism alive, I would pick small holes in his otherwise robust and well-reasoned arguments.
Yesterday’s post on lessons we should take to Italy from the Greek crisis offer one of these delightful opportunities.
Let me first say that his distinction between “association contagion” and “informative contagion” is well-taken. Living in eastern Europe provides a good example of some of the problems of assuming similarity by mere proximity.
I also think h, more or less, gets to the crux of things in his outline of the three main lessons we should take from Greece.
Not to be annoyingly fastidious (or retroactively preachy), but let’s talk about where I think he comes up short in his three-consideration analysis.
Pre-Greece, I thought that the German political class would on some level welcome an opportunity to open the German pocketbook in exchange for political domination of the entire continent.
It shouldn’t have taken a crisis in Greece to make it clear that Germans (not to mention the French and every other European state) are a bit wary of German continental domination.
This makes it extremely difficult for the EU to make credible commitments.
Well before there were issues with the commitment of individual EU member states to bailouts and mechanisms such as the European Financial Stability Facility, the EU’s ability to establish cohesion and implement meaningful integration policies already was highly questionable. The ratification problems associated with the failed EU constitution offer one example of this quagmire.
Finally, let’s go to Yeglasias’ third point. It should be noted that I can’t really criticize this one like the aforementioned two because, well, it really is something we’re all currently, head-shakingly learning about.
We learned from Greece that EU member states have greater capacity for secret budget shenanigans than I would have thought possible.
I agree that this is the most important lesson we’ve learned so far. And what’s most disturbing about this, when you think about the involvement of Goldman in mis-constructing Greece’s budget, is how it reinforces the sad truth that, like your neighborhood investor, even policymakers and supervisory agencies in Brussels have little access to “real” economic statistics – and thus little chance of “success.”
Having said all this, I still think indicators like those published by the World Bank and Transparency International should have de-sanguinized the idea that Greece and Italy should be able to borrow money as cheaply as their more sound northern partners.
I’m not an economist, though sometimes I like pretending to be one, and I surely didn’t see all this coming, but is it too much to ask that those in charge of such things have a little more perspicacity?
Of course, these rankings are recent, but it’s hard to imagine Greece or Italy preforming much better a couple years ago. But perhaps the odds (and Goldman, inter alia, bankers) were stacked against this kind of awareness.