All right – in general I don’t think I’m particularly dense, even in matters economic (though perhaps more so in that than other areas). But I’m confused about several pieces of the European debt crisis and comparisons that get drawn to American issues.
1.) I gather that one of the things that precipitated the crisis was Greece’s disclosure last year that its sovereign debt was about double what had previously been reported, is that correct? How did that happen?
2.) Krugman and others have pointed out that one of the differences between Greek/Italian/Spanish debt and US debt is that the Euro is not under the control of the Greek/Italian/Spanish governments. As such, they cannot really grow their way out of the crisis because their economies do not contribute all that much to the value of their currency, in stark contrast to the US. In this sense, they participate like a “United States of Europe” in that each state can choose to issue bonds, but these bonds will be valued in a currency the value of which is not mostly in the state’s power. So does it follow that if North Carolina were suddenly to restate its balance sheet and disclose a lot more debt than previously thought, the dollar would be in crisis? If not, why not?
3.) Similarly: there are various places that use other countries’ currencies for various reasons. I believe Panama and some other countries maintain a one-to-one exchange rate with the USD; Equador, El Salvador, and East Timor apparently use it as official currency. For several years after independence Namibia used the South African Rand as official currency, and after that maintained a one-to-one exchange rate between the Rand and its Namibian Dollar; other countries in that region (Lesotho and Swaziland) use the Rand still. Why are these examples less of a problem than countries in the so-called “Euro Zone”? Since the Euro is a convertible currency, why couldn’t any country just decide, unilaterally, that its official currency would be the Euro? Why, in other words, does the ECB have sway over individual Euro-Zone countries?