It’s almost a truism to say that membership in the euro exacerbated the Greek crisis. The thinking goes like this: Because Greece doesn’t have its own currency, it couldn’t increase its competitiveness and boost growth through devaluation. Although devaluation is a valuable instrument, I think most countries and companies would benefit if the world, not just Europe, used a single currency.
Today’s fragmented financial world is unfair. On the one hand, there’s Denmark with such a glut of currency, local and foreign, that its central bank’s key deposit rate is minus 0.75 percent and companies are considering overpaying their taxes because the Tax Ministry pays 1 percent interest on the excess. Then there’s Greece, which has had to limit withdrawals from automated teller machines to 60 euros a day because of a severe cash crunch.
Consider the case of Apple, with an enormous cash pile that earns next to nothing. The company had about $160 billion in March 2014 and made $1.795 billion in interest and dividend income that year — which is less than 1 percent, considering that the company’s kept increasing the cash holding. And there are companies, even entire countries, that would kill to be financed at that rate — but are forced to accept much higher ones, and not necessarily because they are unsafe borrowers, but because they are often dragged down by risk perceptions that have little to do with reality.
Before the 2008 financial crisis, financial globalization — defined as international capital inflows — was on the rise, partly because investors underestimated risk. After the mortgage crash, it became clear that rating agencies weren’t much help to investors in making such estimates and that local and specialized knowledge was needed to make intelligent decisions. The European debt crisis only confirmed this. Cross-border investment fell off sharply:
