Saturday, December 11, 2010

Whither the Euro?

Dani Rodrik nails the issues and the answer:

"Ireland and the southern European countries must reduce their debt burden and sharply enhance their economies’ competitiveness. It is hard to see how they can achieve both aims while remaining in the eurozone.

The Greek and Irish bailouts are only temporary palliatives: they do nothing to curtail indebtedness, and they have not stopped contagion. Moreover, the fiscal austerity they prescribe delays economic recovery. The idea that structural and labor-market reforms can deliver quick growth is nothing but a mirage. So the need for debt restructuring is an unavoidable reality.

Even if the Germans and other creditors acquiesce in a restructuring – not from 2013 on, as German Chancellor Angel Merkel has asked for, but now – there is the further problem of restoring competitiveness. This problem is shared by all deficit countries, but is acute in Southern Europe. Membership in the same monetary zone as Germany will condemn these countries to years of deflation, high unemployment, and domestic political turmoil. An exit from the eurozone may be at this point the only realistic option for recovery."

The whole article is well worth reading.


Of course, Rodrik's point is that defending the Euro is no longer worth it for the PIIGS, not whether it's worth it for Germany or France.

1 comment:

Contemplationist said...

Look, Germany wants the cover of a "unified Europe" to dominate meekly and be allowed to exist without being accussed of Nazi imperialism, that it would if it went alone. Oh and the EU was just a vehicle to stop germany and france getting into those pesky wars.
Mesays its time to forgive the Germans for WW2, and dismantle the EU. Let them rise without a fuhrer. It will be okay I promise.