THE BLOG
07/19/2011 05:59 pm ET | Updated Sep 18, 2011

Why We Should Learn From History

The current crisis in the Eurozone is not new news. It has being gone on for a while now. It will continue to progress until something is done. Greece is close to default, this crisis has spread to other Eurozone countries: Portugal and Italy being two key countries in serious economic trouble. Where will it end? Will Greece default, looks likely, should be likely. Should be inevitable.

We need to remember that the Eurozone is an artificial construction undertaken and driven by political considerations ahead of economic considerations. Historically politics has driven the agenda here. Politics has been king. That will soon change. That needs to change. People are realizing that politics can only go so far and that economics and financial markets importantly are the key factors to consider, not only consider but to completely focus on.

Any artificially constructed economic framework is bound to have its problems. I am surprised it has taken so long. We have regionally economic differences never mind across country divergences of economic growth, inflation, unemployment, employment and so forth. Why should the Eurozone be any different? Central banks and governments can only support such a controlled mechanism for so long: supporting large indebted nations. Sometimes change is required not for short term gain but long term growth and development. Change for the next generation. Greece and some other Eurozone countries are at that point now. We need to now move from the theory to the reality and allow some of the banks, and bond holders take the pain of the debt burden within some of the Eurozone countries. Greece should be allowed to default on its debts. Greece should be allowed to transition its economy away from the Eurozone and allowed (if it wants to) to take back its sovereignty in its economic affairs. If this means Greece needs to re-establish the Drachma again to regain slowly its economic credibility, so be it. It could (and would) be a price worth paying now for much better longer term economic growth, economic credibility.

I always find it puzzling that people often do not take into account history when assessing market and financial conditions. History teaches us a lot about events. Humans are prone to repeating past mistakes and being over confident about their own abilities in certain situations. Some of the debacle of the European Exchange Rate Mechanism (ERM) should still even now be seen as a learning experience, with respect to stopping when economic and other conditions are so out of line with the reality that things need to change and need to change fast.

Now it is the case that some of the Eurozone countries need to take a hard look at themselves and decide on their own self interest. It is time that policymakers took the hard and inevitable decisions now, while they still have some time. A default on Greece will send out the signal that people do learn from history, that no country is too big to fail and that policymakers now see the reality before their very own eyes. From this a stronger and more independent Eurozone would emerge. Don't read about history, learn from it.