When the credit crunch first hit, Ireland came out and offered blanket guarantees to its banks and assuaged investors. The result was, Ireland crippled itself financially.Well, that is hardly headline stuff, but the problem faced by Europoe is of a different magnitude,
The European Union now faces the same risks.
For the European Union, Ireland’s and Greece’s and Portugal’s current market woes pose an existential problem. If the financial crisis forces these countries out of the euro, not only could it result in a disbandment of the single currency but put an end to the European project as it is now structured.But as Jeremy Warner points out in today's Telegraph, the political imperative of the European Union cannot conceive of this.
The best guess is that the currency will limp on in its compromised form, though there is always the possibility that social unrest and/or German disillusionment might tear it apart sooner. It also remains to be seen quite what further damage sovereign debt default will do to an already seriously impaired banking system. In any case, we are not there yet.It is still holed beneath the water line though and in the end as Warner asks,
When politics and economics collide, it is often said, the economics always ends up winning. The curiosity of the euro is that it has managed to defy this otherwise universally applicable rule; the politics somehow continues to triumph over the single currency’s self-evidently flawed economics.
For how much longer can this continue?