{"id":420976,"date":"2010-03-12T10:19:58","date_gmt":"2010-03-12T15:19:58","guid":{"rendered":"tag:www.economist.com,21005340"},"modified":"2010-03-12T10:19:58","modified_gmt":"2010-03-12T15:19:58","slug":"whos-holding-the-cards","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/420976","title":{"rendered":"Who’s holding the cards"},"content":{"rendered":"

HENRY FARRELL, in the process of discussing Charlemagne’s views on the meaning of Germany’s support for a European Monetary Fund, makes<\/a> a very interesting point:<\/p>\n

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The IMF<\/span> usually has maximal bargaining power at a country\u2019s moment of crisis \u2013 it typically cares far less about whether the country makes it through than the country itself does, and hence can extract harsh conditions in return for aid. But \u2013 as we have seen with the Greek crisis \u2013 EU member states are far less able to simulate indifference when one of their own is in real trouble, both because member states are clubby, involved in iterated bargains etc, and because any real crisis is likely to be highly contagious (especially within the eurozone). In other words, the bargaining power of other EU member states (and of any purported EMF<\/span>) is quite limited. If Greece really starts going down the tubes, Germany faces the unpalatable choice of either helping out or abandoning the system that it, more than any other member state, created. In short \u2013 any EMF<\/span>, unlike the IMF<\/span>, needs (a) to concentrate on preventing countries getting into trouble rather than dealing with them when they are already in trouble, and (b) deal with the fact that any country in trouble likely has significant clout in the architecture overseeing it.<\/p>\n

From my sense of the EU integration process, and of the rough bargaining strengths of the actors involved, I imagine that any final bargain will emphasize forward-looking measures, which are intended to forestall problems before they arise. Unhappily for Bundesbank disciplinarians, these are likely to rely more on carrots than sticks \u2013 it is clear from previous experience with the Growth and Stability Pact that threats of harsh punishment are not sufficient to produce virtue if these threats are not credible. We can expect moderate levels of fiscal transfers (likely ratcheting up over time), aimed at helping ease the pain of adjustment, together with admonishments (and withdrawal of goodies) for those who fail to live up to their promises.<\/p>\n<\/blockquote>\n

This is how tighter European integration is likely to happen then. Having tied their fates together, European countries can no longer pretend to be indifferent to the success or failure of other euro zone members. Germany is learning now what that means\u2014that it is economically unacceptable to allow troubled member states to fail on their own, and politically and economically unacceptable to kick them out. And so the options are to be drawn reluctantly and repeatedly into bail-outs or to attempt to act pre-emptively to prevent crisis conditions from emerging\u2014which, of course, means a move toward common European fiscal policy, including regular transfers between states as takes place in America.<\/p>\n

Or maybe Germany will try for a last ditch attempt to avoid intervention. But as with Lehman Brothers, officials will often find that a misguided attempt to stay out of a mess may ultimately generate the necessity to intervene quickly, overwhelmingly, and more completely than would have been the case had an orderly solution to the problem been proposed and carried out.<\/p>\n","protected":false},"excerpt":{"rendered":"

HENRY FARRELL, in the process of discussing Charlemagne’s views on the meaning of Germany’s support for a European Monetary Fund, makes a very interesting point: The IMF usually has maximal bargaining power at a country\u2019s moment of crisis \u2013 it typically cares far less about whether the country makes it through than the country itself […]<\/p>\n","protected":false},"author":4534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-420976","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/420976","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=420976"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/420976\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=420976"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=420976"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=420976"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}