Mr. Strauss-Kahn is leaving a mess for his successor. A quote from the essay at The American:
The real problem for Europe’s peripheral countries is that the very large economic imbalances that they are now experiencing are extraordinarily difficult to correct within the straitjacket of EU membership. No longer having their own currency to manage, these countries cannot resort to currency devaluation to boost exports. Instead, they now have to earn competitiveness through the painful process of wage and price deflation. And a big boost in exports is exactly what these countries now need to withstand the many years of public sector belt-tightening that they will have to endure to put their public finances on sustainable paths.
Strauss-Kahn should have recognized that Greece, Ireland, and Portugal were all essentially bankrupt. In particular, he should have accepted that, without a meaningful write down of their government debt, there was no way that these countries could restore order to their public finances without provoking the deepest of economic recessions. Instead, Strauss-Kahn chose to believe that all that was required to tide these countries over their economic crises was the usual IMF recipe of draconian budget belt-tightening backed by very large public-sector bailout lending from the IMF and the European Union.
