Upon reflection, I think I might be misreading the Euro situation. I still think it's on borrowed time (this seems to be becoming the prevailing view), but I've been thinking about this from a financial perspective instead of a political one, and that might be mis-coloring my take on it.
Up to now I've been publicly saying that I thought it made more sense for Germany to leave the Euro than for Greece to do it. This was because if Greece goes, then they'll be followed by Italy and Spain and Ireland etc as market discipline is enforced on each of those countries in turn. The result will be a euro that is shattered rather than cracked. From a financial perspective, this is stupid and will result in lost and lots of dislocation - far more than if Germany left and the Euro was then allowed to inflate as the PIIGS require.
But a financial solution is based upon the optimal outcomes, and politics isn't about outcome, it's about intention. The inevitable solution to the Euro crisis will be political not financial. So I think it's entirely possible that Greece is forced out, followed by the rest of the big spenders, even though it will be worse for everyone.
Greece cannot survive without a change to the euro structure. That's a foregone conclusion. The chickens (to quote a Chicago area clergyman) have come home to roost, and reality is knocking at the door. To imagine that Germany will take on any amount of pain that it isn't absolutely forced to in order to ease the transition of the Greeks is probably mistaken. Even if would mean even less cumulative disruption for the Germans as well.
The politicians will believe that they can avoid some portion of the consequences, right up to the edge of the waterfall. Once they go over, they'll believe they can avoid the consequences of hitting the bottom, and once they hit the bottom, they'll believe they can avoid the consequences of going under.
For these people, hope isn't guarded optimism about the roll of the dice, it's a mandatory worldview which involves ignoring all potentially negative outcomes. People like don't reach optimal solutions - ever.
3 comments:
I have found myself becoming far more pessimistic about Europe and ourselves.
I will not be surprised if this time next year, we are discussing the riots, turmoil, and the new dictatorships taking power across the EU.
I don't expect things to be that bad here in the USA. But I expect crime will skyrocket, in particular "flash mob" type events. Here in NJ the mobs don't have much to worry about. I do expect though, one flash mob will encounter a group of CCW holders (TX, FL, TN.. etc.) who won't take kindly to be mobbed. A dozen dead 'youths' will result in a really crap hitting the fan moment.
Some quotes from Otto Von Bismark:
>>The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood.<<
>>A government must not waiver once it has chosen it's course. It must not look to the left or right but go forward.<<
>>The secret of politics? Make a good treaty with Russia.<<
+++++++++++++++++++
The Zollverein laid the groundwork for Von Bismark. As Germany unified it dealt with Austria Hungary and later France in the Franco-Prussian war. Unified Germany has a historical appreciation for trade advantages with neighboring states - it is what lead to the unification.
Italy, Greece, Spain and Ireland are on the periphery, both geographically and historically. Politically speaking, Germans will accept plans that impose less pain on bordering states, rather than "overreaching" for some grand scheme. They have had enough of those.
Just my SWAG.
The return of the Deutchmark would destroy the Euro and would likely herald the end of the EU as a political confederation. Neither Brussels, Berlin or the other euro states seem too keen on that. I concur that this is likely going to result in a political, rather than economic fix. After the first world war and a great depression who would've thought there'd be money in the coffers to start another world-wide conflagration but we found a way. Humans are good like that.
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