Wednesday, October 12, 2011
Euro crisis: still sliding toward the cliffI haven't blogged that much the last couple of weeks about the European Union crisis that is more specifically a euro crisis at the moment. Not because it's going away, or getting better, or just treading water. On the contrary. European leaders seem locked into a cycle of bad policy choices not unlike the proverbial deer in the headlights.
Martin Wolf in First aid is not a cure Financial Times 11/11/2011 explains the unpleasant state of things:
At least, nobody now sees the eurozone crisis as a little local difficulty. It has become the epicentre of an aftershock of the global financial crisis that could prove even more destructive than the initial earthquake. Potentially, it is a triple shock: a financial crisis; a crisis of sovereigns, including Italy, the world's third largest sovereign debtor; and a crisis of the European project with unknowable political consequences. It is no wonder people are frightened. They ought to be.The "European project" means the European Union. One of the severe failures of EU leadership in the past several years, especially in Germany and France, has been to focus on the EU as though it were mainly an economic undertaking. But until recently, the economic union including the common currency were economic measures taken to promote the larger political ends: the development of common democratic political institutions and policies and the prevention of war in Europe. It may sound formulaic, but the collapse of the EU would be a serious setback for democracy and peace, first of all in Europe but in the larger world, as well.
Wolf discusses what needs to be done in the short term:
It's not in itself a sign of the value of the ideas that there is a "broad consensus of the world's policymakers and commentators" around it. The Very Serious People are often very seriously wrong (as we're probably going to see once again in their reaction to the alleged Iranian terror plot just busted in the US).
But in this case, it's my impression as well that pretty much everyone familiar with the situation knows that something like what Wolf describes has to be done, and the sooner the better. That's what makes the current EU political paralysis so remarkable. Pick your metaphor: deer in headlights, heading toward the cliff, Titanic and the iceberg, train heading toward the washed-out bridge, whatever. But from what I can see, the EU leaders know they are on a disastrous course with consequences that will be seriously bad. But they just keep heading in the same direction.
Wolf gets wonkier here:
As I have long argued, at bottom this is far more a balance of payments crisis rooted in financial sector misbehaviour and cumulative divergence in competitiveness, than a fiscal crisis. The architects of the eurozone thought that balance of payments crises were impossible in a currency union. They were wrong. In the absence of automatic cross-border financing, an unfinanceable external deficit will emerge as a domestic credit crisis. Then, even currency risk will return if the union is among largely sovereign states.I hope the European leaders will surprise us by flushing their mad faith in austerity economics and start pursuing more sensible policies. But my hope has been fading lately.
Tags: eu, euro, european union
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No subject for immortal verse
That we who lived by honest dreams
Defend the bad against the worse."
-- Cecil Day-Lewis from Where Are The War Poets?
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