This is the headline of a CNBC piece yesterday and it says it all.
Very interesting piece about it in this week's Economist, Sept 17-23(2011).
Great quote pg. 12, "the euro has reached the point where nobody is going to get what they want-something that needs to be spelled out to the Germans more than anybody. Over the past 18 months they have grudgingly supported half-rescue after half-rescue-and the bill has gone up. In the end confidence and credibility are all. For the ECB to stand behind less prudent countries may be unwelcome to Germans; but letting the euro fall to bits is much, much worse. Spell that out clearly to your voters, Mrs. Merkel."
And on page 11, "A rescue must do four things fast. First, it must make clear which of Europe's governments are deemed illiquid and which are insolvent, giving unlimited backing to the solvent governments but restructuring the debt of those that can never repay it. Second, it has to shore up Europe's banks to ensure they can withstand a sovereign default. Third, it needs to shift the euro zone's macroeconomic policy from its obsession with budget-cutting towards an agenda of growth. And finally, it must start the process of designing a new system to stop such a mess ever being created again."
Particularly like the sound of restructuring the debt of those who can never repay it-this means Greece first and foremost. Also like the sound of "shift the euro zone's macroeconomic policy from its obsession with budget-cutting towards an agenda of growth."
One might hope that if the magazine of record for international economics speaks this way presumably somene at the EU might be listening-at least the hope isn't entirely vain.
Predictably though the Economist dismisses the idea of a European bond, "the political oversight to ensure that high-spending countries do not fritter away other people's money would take years to sort out-and one thing the euro zone does not have is time." True but is this (neurotic-obsessive) concern with the Zizekan Other who enjoys in your place not a misplaced concern right now? Isn't this what got Europe here in the first place: as the Economist says, the idea is anathema to Germany 'for the ECB to stand behind less prudent countries'? It is this preoccupation that Europeans but especially Germany have to get over.
Again if the Economist gets it maybe there is some hope that the ECB will finally get it. While I don't agree with everything in the Economist piece-as suggested above I do like the idea of European bonds much more than they do though I understand implementing them could take too much time.
Still their repudiation of austerity as self-defeating is right on target and I imagine that there are policy makers who are at least aware of a piece like this.
"So far the euro zone's response has relied too much on two things: austerity and pretence. Sharply cutting budget deficits has been the priority-hence the tax rises and spending cuts. But this collectively huge fiscal contraction is self-defeating. by driving enfeebled economies into recession it only increases worries about both government debts and European banks. And mere budget-cutting does not deal with the real cause of the mess, which is a loss of credibility."
One has to hope there is some sort of enlightened leadership at the ECB. If Europe goes down it will have worldwide consequences, no way can we avoid the trouble either. In the end a large part of the trouble is Germany who has to get over this self-defeating pique of self-righteousness. Whatever the costs of it bailing out Greece, Spain or Italy they are dwarfed by the costs it will suffer-along with the rest of Europe and the world will suffer-if it doesn't.
The narrative that the EU has to get past, hopefully this Economist piece might contribute to this, is that this is an Aesop's Fable and the distressed EU countries are just short sighted ants who did not adequately prepare for the winter. That this view is too simplistic is crystallized by considering the case of Spain and Ireland who both had budget surpluses before the Crisis of 2008 and yet this didn't save them from being pushed to the brink. They too could be self righteous-after all the crisis itself was largely foreign and American. Hopefully the EU will get past these half measures soon.