Thursday, June 28, 2012

At Last: the Truth about the Euro Crisis

At last, someone has said it. It ain't pretty, but it's pretty true:

Europe: No solution 'til it gets much worse
[...] By one count, this is the 17th summit dealing with the Euro crisis. Why do they all disappoint on a fundamental level?

The answer is fairly simple: The real solutions will require painful actions that conflict with national myths in key countries and the politicians do not believe the public is yet scared enough to accept that much pain.

Some political problems, like our own debt ceiling debate of last summer, cannot be solved until the very last moment, because the external pressure has to be so high that politicians can gain forgiveness for making painful choices.

It also becomes less attractive to do the wrong thing, because it would be clear that the politicians triggered the ensuing disaster.

The ultimate solution to the crisis will likely require the strong countries to guarantee the debts of the weak countries, a commitment national leaders cannot explain to their voters unless the alternative is the prospect of immediate disaster.

Germany has its lowest unemployment rate in years, making it a bit hard to convince the public that everything is going to pieces. The strong countries also do not trust the weak to make the necessary reforms to avoid having the guarantees from the strong nations turn into real costs when the struggling countries default.

Therefore, the ultimate solution will also require countries in the euro area to give centralized European authorities a veto power over their budgets. Voters in the weak countries are not yet frightened enough to allow their leaders to hand over this much power to Brussels or Frankfurt. [...]

The author believes they can get through it, but only at the height of the crisis, at the last minute. It seems inevitable. And what they are preparing for now.

Also see:

Euro Crisis an excuse for consolidation of power?

EU Member Nations to Sacrifice Sovereignty?

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