Friday, November 12, 2010

Will the EU continue to pay everyone's bar tab?

Not for long according to the WSJ's Alen Matich, referring to the slow building earthquake that is the Irish debt problem he says,
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.

The European Union now faces the same risks.
Well, that is hardly headline stuff, but the problem faced by Europoe is of a different magnitude,
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?

5 comments:

Anonymous said...

You've got to be English to believe the euro can fail. You sound like marxists announcing the revolution...

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OldSouth said...

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Greetings from across the pond.

Anonymous said...

By impoverishing the PIIGS, & preventing their weakest 3 members (Greece, Ireland, & Portugal) from leaving the euro, the EU will destroy its main construct - the euro itself. Instead of helping them leave, & then operating a new cheaper currency (eg the revived drachma, punt or escudo etc), & then helping them to devalue these new or revived currencies until they found their optimum foreign exchange rate values, these 3 countries' EU advisers have persuaded them to pay back whatever they can to their European bank creditors, leaving them now with almost nothing in reserve.

This selfish policy will cost the EU & the euro dear. With more & more euro countries sliding into extreme crisis, Germany & Holland - to save themselves - will have to flee back to the mark & the guilder, while the assets of the remainder are picked over by sovereign wealth funds from East Asia & the Middle East. And thus, the grand plan to make the EU & its member countries stand as tall as the USA, will reduce parts of continental Europe to penury. What foolishness! Only the loathesome EU could have done it!

Gawain Towler said...

Why thank you Southerner,

Anon, No I don't think it will fail. Or not for a long time yet. I think the politics will trump the economics, that is my point. But what damage it will wreck upon the perifferal economies of Europe whilst the European elite cling to their political dreams is anybody's guess

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