Tuesday, May 25, 2010

Whatever Germany does, the euro as we know it is dead - Telegraph


By any legitimate measure, Greece was unworthy of eurozone membership. That it achieved card-carrying status was down to the sleight-of-hand skills of its Brussels fixers and the acquiescence of central bank bean-counters. Now we know the truth, jet-hosing it with yet more debt makes no sense. Another dose of funny money will delay but not extinguish the need for austerity.
This is why the euro, in its current form, is finished. The game is up for a monetary union that was meant to bolt together work-and-save citizens in northern Europe with the party animals of Club Med. No amount of pit props from Berlin can save the euro Mk I from collapsing under the weight of its structural dysfunctionality. You cannot run indefinitely a single currency with one interest rate for 16 economies, when there are such huge fiscal disparities.
What was once deemed unthinkable is now, I believe, inevitable: withdrawal from the eurozone of one or more of its member countries. At the bottom end, Greece and Portugal are favourites to be forced out through weakness. At the top end, proposals are already being floated in the Frankfurt press for a new "hard currency" zone, led by Germany, Austria and the Benelux countries. Either way, rich and poor are heading in opposite directions.

I think the Euro will survive, but Germany may have to take over a few Greek islands as part of the bargain.  The left will call for greater political unity so that the politicians can "harmonize" the financial problems of the Euro weaklings using taxes from the stronger countries.  A carbon tax or something like it in the name of saving the environment might provide them cover for a bailout.  But it's still hard to see how they can make it work in the long run.  The Greeks would rather riot than work, and that attitude is going to spread to Portugal and Spain.  I'm afraid that this is going to get ugly.

Posted via email from The Blue Pelican

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