Wednesday, May 30, 2012

Euro Bedtime Stories

 Peter Boone and Simon Johnson just published a really important post, “The End of the Euro : A Survivor’s Guide” on their blog, The Baseline Scenario (May 28).
Excerpt :

“Some European politicians area now telling us that an orderly exit for Greece is feasible under current conditions, and Greece will be the only nation that leaves. They are wrong. Greece’s exit is simply another step in a chain of events that leads towards a chaotic dissolution of the euro zone.”

The punch line:

“Europe needs to salvage its great achievements, including free trade and labor mobility across the continent, while extricating itself from the colossal error of the single currency.

Unfortunately for all of us, our politicians refuse to go there – they hate to admit their mistakes and past incompetence, and in many case, the job of coordinating those seventeen discordant nations in the wind down of this currency regime is, perhaps, beyond reach.

Forget about a rescue in the form of the G20, the G8, the G7, a new European Union Treasury, the issue of Eurobonds, a large scale debt mutualisation scheme, or any other bedtime story. We are each on our own.”

My comment:

I wrote it back in 1998, in my book, L’erreur européenne (American edition, Euro Error, Algora 1999):

“The European mistake of the Nineties (the preparation for launching the euro) is the century’s most serious error of economic policy after that of the Thirties. The liabilities of governments are particularly heavy, their behavior inept and their responsibility immense.”(p.73).

“Prisoners of false conceptions and chimerical objectives, as in the Thirties, (our political leaders) will yield probably at the last moment, when faced with the ruin of the economy and the democratic revolt of the populace” (p.258).

The paper by Boone and Johnson, here, explains  in detail why a complete collapse of the euro is most likely, perhaps in months, or may take several more years, but anyhow is practically on the cards. It is a must read.

PS: I have been told that the link with The Baseline Scenario, Simon Johnson's blog, is out of order. It can be accessed through a Google search, however.

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