A modest proposal for eurozone break-up

The Telegraph ^ | 7/17/2011 | Ambrose Evans-Pritchard

[bruinbirdman]

The eurozone can in theory still be saved, if two sets of conditions are fulfilled; if the leaders of Germany, Austria, Finland, and the Netherlands accept fiscal union and a common pooling of debt, and can persuade their parliaments and courts to ratify such a revolution.

If the Germanic bloc agrees to tear up the mandate of the European Central Bank, letting it switch from inflation-targeting to job-targeting ("Unemployment must not exceed 10pc in two or more EMU states, or some such formula), effectively instructing the ECB to embark on Fed-style stimulus for three to five years.

This might allow Spain to work off a total debt load now topping 300pc of GDP without having to deflate wages and tip further into a Fisherite debt-deflation spiral. It might allow Italy at 250pc of GDP to claw back lost competitiveness without self-defeating perma-slump.

Yet such ECB stimulus would have a nasty side-effect: inflation threatening 5pc or 6pc in Germany. Berlin would find itself in much the same trouble as Madrid and Dublin six years ago: expected to twist itself in knots by undertaking massive fiscal tightening and financial repression to offset a massively inappropriate monetary policy.

I strongly doubt that the Bundestag, Tweede Kamer, or Finland's Eduskunta will accept such conditions. Why should they? The citizens of the German bloc never voted for an EU treasury, tax union, or debt pool, or for the emasculation of parliamentary prerogatives that this implies, if they were allowed to vote at all. Indeed, they were told this would never happen. Germany's Social Christian leader Edmund Stoiber japed after Maastricht that a future German rescue of any EMU state was as likely as "famine in Bavaria".

Given that these sovereign diets will not efface themselves lightly, the wise course is to

[arthurus]

effectively instructing the ECB to embark on Fed-style stimulus for three to five years.

With all their degrees these folks do not understand economics. Unify the more thriving economies and shed the perpetual basket cases, then convert the healthier economies into basket cases. Whatever happens, the necessary measures to restore economic health must not be implemented lest the Great God Maynard Keynes should be displeased.

[bruinbirdman]

"The eurozone can in theory still be saved, if two sets of conditions are fulfilled"

Guess The Third Way has gone astray.

yitbos

[hinckley buzzard]

Wishful thinking. The EU is done for in its present form. When they began I gave them ten years. They did beat that but in the end it won't be by much, I'll wager.

[bruinbirdman]

" I gave them ten years."

Does the buzzardman remember MadIvan? He coined the phrase, "The euro is stealth capitalism." EuroSocialism could not exist in the face of a common currency.

Those discussions took place at FR before the euro took effect.

yitbos