BREAKING NEWS! I have found a comment from Milton Friedman on the present Greek crisis in, which he expresses, his sympathies for Syriza supporters:

It is not the announced intention of our present arrangements, or of any of the various proposals for strengthening international monetary cooperation, to delegate significant political power over internal economic policy to foreign central bankers or officials of an international agency. But that is unquestionably their effect. That this is a very real issue was illustrated dramatically by the recent experience of the Greeks, just after the Syriza government came into power. Personally, I disagree sharply with the particular policies that the newly elected Syriza government apparently wishes to follow, and regard the policy changes imposed on Greece by the EU as the price of the rescue of euro membership as very likely far better for Greece itself. Yet that does not alter the fact that Greek internal policy was shaped by officials who were not responsible to the Greek electorate and in directions that had not emerged through the regular political process. In this respect, I find myself in complete sympathy with those Syriza supporters who regard it as nearly intolerable that the “gnomes in Brussels” should have a veto power over internal Greek economic policy.

Ok, I cheated. This is really from Friedman’s paper “The Political Economy of International Monetary Arrangements” from 1965 (re-printed in “Dollars and Deficits”, 1968, see page 272) and I have altered the text slightly (the bold text is my changes).

Originally it was about “Britain” rather than “Greece” and “Labour” rather than “Syriza” and the ‘gnomes’ were from “Zürich” rather than from “Brussels”.

But the lesson is the same – In-Optimal Currency Union will lead to balance of payments crisis, which will necessitate an income transfer from the centre to the periphery, which in turn will lead to the demand for political centralisation.

Britain felt the consequences of that within the Bretton Woods system in 1964. Greece is facing similar consequences today as a result of euro membership.

It seems like policy makers in Europe are totally incapable of understanding and learning anything from monetary history. Do I need to remind anybody what happened with the Bretton Woods system?

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