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Thursday, December 8, 2011

The Showdown at the EU Corral

I've been studiously trying to avoid obsessing about the Euro crisis this week, going out with friends to the (now egregiously commercial) Anjuna Beach flea market and a great dinner in Panaji. But the time has come to confront the crisis again, since this is the week of the great "Showdown at the EU Corral."

Merkel and Sarkozy seem to think they can stampede the rest of the EU into a further renunciation of national sovereignty in the name of another doomed Stability Pact (remember that Germany was the first country to violate the 3% deficit clause of the old Stability Pact in 2004, while Spain and Ireland were actually running fiscal surpluses until 2008). So is this the hidden agenda to railroad a dictatorship on the EU, simple obtuseness, or a fig leaf to provide the domestic political cover to allow the ECB to finally fire the "big bazooka" of a lender-of-last-resort bond commitment? Your guess is as good as mine.

But of course the real problem is that this approach completely fails to address the root of the problem. And everyone know this (except our hapless leaders?), from editorialists in today's New York Times and Der Spiegel, to academics like Charles Wyplosz, to the markets themselves, which are rational enough to price in the fact that austerity in a recession only makes the fiscal quandary of the peripheral states worse. So kicking the can down the road ends here. But an attempt at railroading a defective and undemocratic Franco-German "Stability" Pact will only provoke justifiable reactions on the part of the other EU nations at being treated like truant school children.

Meanwhile, in another article Der Spiegel reports that various national central banks such as Ireland's are reequipping themselves with the printing press capacity necessary for reintroducing national currencies in a hurry should the failure of the EU summit call for a Plan B. So the writing is on the wall, or going to press. I'm going to the beach...

P.S. The combinatorially simplest breakup of the Eurozone would just have Germany and Greece exit. It would also be morally equitable, since only the truly guilty parties would be relegated from the group (Greece for being Greece - cooking the books and being a patronage state, and Germany for the fundamental problem - wage dumping - and vetoing a mutually constructive solution). I pointed this out as long ago as Sept. 11. Seems like ancient history now...

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