Thursday, May 17, 2012

Duy Sums Up

Tim Duy sums up the current state of play in Europe. If David Cameron can appear clairvoyant, that says something about the persistent denial of reality in other European capitals:

On the issue of internal fiscal transfers, British Prime Minister David Cameron is joining the chorus of policymakers calling on Continental leaders to understand the extent of their problem:
“Either Europe has a committed, stable, successful eurozone with an effective firewall, well-capitalised and regulated banks, a system of fiscal burden sharing and supportive monetary policy across the eurozone or we are in uncharted territory which carries huge risks for everyone.”
That pretty much summarizes the situation. The institutional structure, the fiscal plumbing, simply isn't present in the Eurozone to adequately adjust for asymmetric shocks. End of story. Either get that structure in place or accept that the project is a failure. Can Europe make such a transition fast enough? Yes - with German leadership to offer a mix bilateral transfers, Eurobonds, and ECB commitment to stand as lender of last resort to all the region as a whole. Economically possible and politically possible, however, are two different things.

1 comment:

FrédéricLN said...

Fully agree, but to the last sentence. The solution to the lack of fiscal plumbing, is fiscal plumbing. Not, imho, bilateral transfers where the payer wouldn't be the decision-maker (it's near to be against our 1789 Bill of Rights!); not Eurobonds who would mean lending money without knowing how it will be reimbursed, by whom and with what; not sinking the Central Bank with junk State bonds — any banking system needs a sound Central Bank.

When any moral person is bankrupt, declaring it legally bankrupt is the starting point for recovery. Hiding the situation under amounts of banknotes makes the situation worse. Angel Gurria of OECD recalled it more than two years ago. Had bankruptcy been stated then, Greece would be right now in 2012, imho, one of the soundest and best-growing countries of the Eurozone.