UK: [PM] David Cameron's referendum may never be necessary

The Telegraph ^ | 1/23/2013 | Ambrose Evans-Pritchard

[bruinbirdman]

David Cameron's pledge for an 'in-or-out' referendum on Europe will be overtaken by internal events long before we reach 2017. The vote may never be necessary. He is entirely right to play for time.

The eurozone's North-South misalignment has not been resolved. The Club Med bloc is still sliding into deeper depression. The financial crisis — never more than a symptom — has graduated into a more intractable economic, social, and therefore political crisis.

The ECB's Mario Draghi has taken the risk of a sovereign default in Spain and Italy off the table, but he has not restored these countries to economic viability within a D-Mark currency bloc, and nor can he.

Take a moment to read Eurozone crisis: it ain't over yet by Professor Paulo Manasse from Bologna University, posted on VOX EU.

Look at the German-Italian gap below. The two economies have diverged 14pc of GDP since 2006 and the split is certain to keep growing this year, next year, and the year after that:

While the 2008-2009 meltdown is a "transitory shock" for the US, it has turned into a "quasi-permanent shock" for Europe similar to the effects of the first oil crisis in 1973. Prof Willem Buiter at Citigroup makes much the same sort of argument.

The term in vogue is "hysteresis". If people are out of work for long enough, the damage to skills and human capital becomes a permanent loss. The underlying growth potential of the economy is damaged for years. This is what we are seeing in half Europe right now.

"No illusions that the storm is ending soon should be entertained. Indeed, we may well be in the eye of the hurricane. The longer-term prospects for the survival of the euro not only are not improving, they are actually

[Cronos]

well, Individual states within the US and in Germany have lower growth than others.

I don't think the Euro will collapse -- by having the Euro, Germany manages to have a "drag" lowering its trading currency -- if it still had the DM, the DM would have risen sharply against Germany's trade partners (like what happened to the Swiss Franc), damping German exports even to China etc.