Commentary on Political Economy

Sunday 30 October 2011

Comment on Wolfgang Munchau FT Column
Mr. Munchau, with whom we normally and stridently agree, has done "a howler". The patent absurdity of what he is arguing can be fathomed by changing the title of his article to the converse: "What kills the euro will save the Union" - which is as banal a non sequitur as one may wish for in a George W. Bush speech!
If one follows Mr. Munchau's logic so efficaciously applied in articles past on the topic, the only way to save the euro now is to take the most radical option of all - the true "bazooka" - and turn the European Central Bank into the "lender of last resort" (or the lender of no return) - whereupon "speculators" and "markets" would have to pack their CDSs and  go home.
But if ever Eurozone political, industrial and financial elites were prepared to do that - then not only would the rest of the Union have absolutely nothing that it could do against such firm and incontrovertible action - but indeed it would have promptly to join the members of a "Eurozone" that had now become overnight an "indissoluble, sovereign and sacrosanct Union" - "a more perfect union" in the American sense!
I am almost tempted to put this in mathematical notation (as does the ridiculous Daniel Gros at Eurovox who has suddenly discovered "modelling"! Munchau forgets and neglects that the entire idea behind the European Monetary Union was to establish an "optimal currency area" (OPA) in which monetary policy would be set centrally to protect Germany from "imported inflation" due to the "competitive devaluations" of France and Italy, and to force these national elites to discipline their workers through "austerity" - which is what is happening now in any case, except.... Except that because the ECB is not a "real" central bank that can act as lender of last resort, financial-market speculation is "blackmailing" the sovereign debt of France and Italy and others simply because "the opportunity exists"! And the opportunity exists because the elites of eurozone countries will not accept that "either we hang together or we shall most certainly hang separately"!
What is happening in stark reality is that these "national elites" simply wish to preserve at all costs their own little puny patch like the miserable cowards that they are by not penalising their financial sectors and bearing the costs of "the burden of adjustment" that follow necessarily from the Great Financial Crisis!
The eurozone countries have absolutely nothing to lose from further integration and absolutely everything to renounce if they go their separate ways - because European disunion is already encouraging other "emerging countries" from China to Russia and India and Brasil and - would you believe? - even Turkey to rear their ugly heads and make demands on Europe that will see our Continent become a global backwater and sink into the Atlantic like....Atlantis!
Conversely, the immediate eclipse of speculative activity against the euro and "sovereign debt" that would result from the ECB becoming the lender of last resort would put a gun to the temple of the rest of the "Union" countries either to join the euro or to be consigned to the dustbin of history!
You pays your money and you takes your choice!


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