2011 December 03 Saturday
End Game For Euro: Fiscal Union Or Partial Break-Up

The "muddling thru" of the last 3 years is drawing to an end according to the European representative of the biggest bond investing firm.

European governments must rapidly commit to fiscal union or a partial break-up of the euro to prevent a "fundamental erosion" in demand for the region's debt, Pimco, the world's biggest bond investor, has warned.

I don't see the Germans opting for a real fiscal union. Do you? It seems imprudent.

The euro currency's father says it was flawed from the start. Um, so now he tells us.

The euro project was flawed from the start and the current generation of European leaders has failed to address its fundamental problems, Jacques Delors, the architect of the single currency, declares today.

Laurence Copeland gets it exactly right: the members of the euro zone are fundamentally incompatible and should get a divorce.

There is in the end no way of squaring this circle. The euro zone ties a country with a deeply-ingrained fear of inflation and a longstanding commitment to thrift to a bunch of neighbours most of whom have a historic tolerance of inflation and feckless spending. It is a wonder this marriage has lasted as long as it has. Now that the time has come for divorce, you canít help thinking it is a pity they didnít think to draw up a prenup.

Ambrose Evans-Pritchard holds the European Central Bank responsible for causing a contraction of the money supply of Southern European countries and precipitating the current solvency crisis for European banks. I think this demonstrates that the ECB shouldn't serve as the central bank of Greece, Italy, Spain, and Portugal. These countries need a central bank dedicated to the conditions of their economies.

The US Federal Reserve is trying to stop the liquidity crisis gripping European banks. Which shows you how weird things have gotten given that the Fed is not the central bank for Europe. The Europeans should use this breathing space to organize replacement currencies for the southern European countries. It is time to act to break up the euro zone.

The euro as presently constituted is not going to be saved. Angela Merkel doesn't want to admit it. But so far it is hard to see the German position as leading to anything but a euro break-up. So time to get on with it. Ignore Merkel's rhetoric about wanting to save the full euro zone. Look at the actions of her government and of the ECB. The only option possible is break-up.

Break-up is sensible anyway. There's no way to either grow out of the crisis. Southern Europe is headed back into recession. Southern European sovereign defaults threaten to cause a massive wave of bank defaults. The southern Europeans need to do defaults in their own currencies. Also, southern European labor markets are incompatible with the euro.

Share |      By Randall Parker at 2011 December 03 09:57 PM  Europe Monetary Union

A.Prole said at December 4, 2011 1:49 AM:

A very important moral lesson can be drawn from this whole sorry saga.
Yes, Delors is a disgusting liar and hypocrite as well as being incompetent, but more imortantly this story shows the utter, utter uselesness, malignancy and trashiness of the elite's economic advice and the bankruptcy of the entire economics profession - the whole sorry shower of tens of thousands of professional economists only economic value is as shark bait.
You see, during the run-up to the Euro, virtually the entire economics profession (including the BIG bastards at 'The Economist' and the WSJ - the shit-cunts whose tune the politicoes dance to), were wetting their panties saying what a good idea it was and everyone must join.In Britain only a handful of right-wing eurosceptic Tories managed bt the skin of their teeth to keep Britain out.

Don't believe a word an economist utters.
You would be better off trusting a snake and the braying of a donkey would give wiser counsel.

bbartlog said at December 4, 2011 6:12 AM:

A Prole: Milton Friedman at least thought the Euro was a bad idea and would fail. But as for economists generally, you're right. The problem is that in order to make a living as an economist you usually end up working to justify a policy for someone... generally a policy that they have their own reasons for implementing. I.e. the shorthand description for 90% of economist roles would be 'tool'.

'Southern European sovereign defaults threaten to cause a massive wave of bank defaults.'

Since the Greek and Italian governments are now headed by ex-Goldman Sachs employees (without need for an election... I'm still wondering about the details of how they did that), and Goldman Sachs apparently has written insurance against a lot of these bonds, I think we can assume that no sovereign default will be occurring in the near future. Of course it's possible I'm overstating their power even as I marvel at their reach; in the end what can't be paid, won't be paid.

Stephen said at December 4, 2011 6:22 PM:

Whenever an economist is interviewed, the first question should be: "How many billions have your earned by applying the economic insights your going to be talking about today?"

Similar declaration should exist for each author of an economics paper.

Lono said at December 5, 2011 9:35 AM:

The Fiscal Union will come to be - centralizing yet more authority in less hands - you don't really believe 50 years of Buildeberg planning has really left this all to chance - do you?

The news indicates it is already happening - the true will and best interests of the citizens in the various entangled nations non-withstanding.

Gene said at December 5, 2011 4:19 PM:

@Stephen: "Whenever an economist is interviewed, the first question should be: "How many billions have your earned by applying the economic insights your going to be talking about today?"

Hmm, well by that measurement, George Soros should be running things:-) and little school children can start learning the 3 R's...reading writing, and reflexivity.

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