Tuesday, February 21, 2012

The EU: Towards and ever closer Union

Over the weekend, a friend of mine argued that the founders of the Eurozone knew that a monetary union without a fiscal union would come undone. So they sowed the seeds of a fiscal crises into the EZ, gambling that the unavoidable pain would be enough to force fiscal union but not so much that the monetary union itself would crumble. At the heart of all of this would be to bind Germany and France together irrevocably.

The ECB continues to try and thread this needs with its latest bail out -- more money, more time, but more pain. If the pain ceased, the push for fiscal union would also cease.
Kicking the can down the road is normally considered idle procrastination. This is different. This is deliberate procrastination. If Greece falls today, nobody knows what kind of economic domino effect it will have on other debtors like Portugal, Italy, and Spain, or the rest of the Europe. Europe has selected the muddle-through and draw-random-recovery-lines option. The honest and inevitable choice -- a wild default or even Greece's departure from the EU -- is impossible for euro ministers to imagine suffering through, for today. Meanwhile, Greece suffers.
Not deliberate procrastination. An engineered application of political pressure. We'll see if it's been calibrated correctly.

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1 Comments:

Blogger Ramanan said...

Winter,

The view that they always knew that it wouldn't work is a kind of excuse they are making up for not having seen it coming.

But it is partially right that they want to engineer a crisis as can be seen from reading these two articles on/by Wolfgang Schauble

http://www.nytimes.com/2011/11/19/world/europe/for-wolfgang-schauble-seeing-opportunity-in-europes-crisis.html?_r=1&pagewanted=all

http://www.ft.com/cms/s/0/97b826e2-d7ab-11e0-a06b-00144feabdc0.html

From the first one

"He sees the turmoil as not an obstacle but a necessity. “We can only achieve a political union if we have a crisis,” Mr. Schäuble said."

12:32 AM  

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