Tom Hirst, of Mindful Money, has posted a thoughtful piece on the Euro Crisis, with special emphasis on the deathtrap that Spain is now in. His analysis of the situation is spot on: so far, Europe’s responses to the Crisis have been piecemeal, disconnected from one another, and based on the denial that this is a Systemic Crisis (that requires a systematic approach) rather than a Greek Crisis that is separate from the Irish Crisis which is different to the Spanish Crisis etc. His apt conclusion is that: “The failure to frame the solution to the fiscal woes of Southern European countries as a common cause…is having real-world implications and is driving fractures in the union ever deeper.”
In the last section of his article, Tom addresses “What Needs To Be Done”. Here is his verdict:
“Firstly, a campaign is required to candidly explain to the public what the consequences of a Eurozone collapse would be and allow them to vote on it. If they decide that it is a risk they are willing to take then they can choose either to continue with current policies or begin a discussion on a route to a more orderly dismantling of the monetary union. If, however, the majority wish to remain part of the euro then this would provide the democratic mandate to institute thoroughgoing reforms necessary for its long-term survival. These would have to include removing the conditionality from the ECB’s Outright Monetary Transactions to cap borrowing costs as well as some form of fiscal transfer from core to periphery. Only then would a comprehensive package, such as Yanis Varoufakis and Stuart Holland’s Modest Proposal for Resolving the Eurozone Crisis, become plausible. Contrary to what eurosceptics assert, it remains possible for structural weaknesses to be addressed and a democratic solution reached without the full or even partial destruction of the single currency. Yet, as the situation in Spain demonstrates, for policymakers to achieve this political timidity is no longer an option.”
I could not but agree with the general thrust here. But I do have one significant qualm. Tom seems to be assuming that a referendum on the Eurozone will be couched as a choice between (a) the current policies and (b) a rational alternative that would transform the Eurozone from an unsustainable to a viable currency union. Alas, this would require a German leadership that wants to resolve the Crisis and is prepared to bind Germany irreversibly to this re-designed currency union. And here is the rub: The very reason this awful Crisis was allowed to go on and on and on is that Germany’s elites have not resolved to do this. Indeed, if anything, they are shifting in the opposite direction, especially now that the Bundesbank has become the de facto champion of a Eurozone breakup. Thus, if a referendum is put to the German people, it will resemble more of a Hobson’s Choice, than any real dilemma on Europe’s future.