In today’s FT, Feldstein has spotted the obvious easy way out. Briefly, Greece should be allowed to leave the Eurozone temporarily, devalue, and rejoin. The drachma would start at one-for-one to the €, then fall (quickly!) to 1.3, at which point it would re-adopt the €. Greece would be competitive again. The only snag is that, as he puts it, ‘…other Eurozone members might object to giving Greece this improved competitiveness.’
In fairness therefore, everyone else would have to be given the same option.
Perhaps there could be an appointed day, once a year, when everybody could step out, as in Lanigan’s Ball, and then step in again, as soon as the competitiveness gain seemed adequate.
In the dollar zone, the lack of competitiveness in eg Michigan could be dealt with in the same way.
And thus the whole world could participate, with confidence, in sub-optimal currency areas, without fiscal discipline. I so wish I had thought of this.
With one brave bound…..