Martin Wolf: Why the Euro Crisis is not Over

Good read here from today’s FT on the Euro crisis.  I essentially agree with his conclusion.  The Euro crisis cannot be over because the structural problem has not been resolved.  In other words, the currency union is not workable unless there is some form of permanent fiscal union or what would essentially become a transfer union much like the United States has in place (see here for more on this).

Via the FT:

“Those who believe the eurozone’s trials are now behind it must assume either an extraordinary economic turnround or a willingness of those trapped in deep recessions to soldier on, year after grim year. Neither assumption seems at all plausible. Moreover, prospects for desirable longer-term reforms – a banking union and enhanced risk sharing – look quite remote. Far more likely is a union founded on one-sided, contractionary adjustment. Will the parties live happily ever after or will this union continue to be characterised by irreconcilable differences? The answer seems evident, at least to me. If so, this unhappy story cannot yet be over.”

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Of course the eurozone is not over the hill, can’t ever be. And it is not possible to create a permanent union of even higher transfers than there are already. Since the paymasters would sooner or later pull the plug. And with paymasters I mean the people, the taxpayers. Not the ‘elites’.

    The euro was and still is an elitist project only, not supported by the majority of people in the core countries. And the eurozone can’t ever become the United States of Europe since there are much, much more things separating the nations than uniting them. From cultures via languages to national business models, work ethics and beyond.

  2. The currency union is now much less workable than 5 years ago. Infact, now the amount of necessary transfers from north to south are much bigger because they have also to pay for economies that are virtually dead and not just unbalanced. This should happen in a context of slowing world economy (with Japan the main Germany competitor which is trying to push exports) and (above all !!!) an imploding french economy. May be that, because of QE and the technical nature of the currency market, we will se EU/U$ at 1,37 – 1,40 in the next 90 days, in that case I will be a euro seller in the large because despite all the efforts of Bernanke I think we will see EU/U$ below 1.15 soon after the german elections.

  3. There is no ‘Euro’ crisis, it’s the safest strongest currency in the world.

    Governments in the Eurozone have problems to resolve, but they are being forced to take their medicine right now.

    It’s so obvious: economic reality in the EZ versus money printing illusions in the US Uk and Japan.

    5 years to go til the day of reckoning and the end of the great bear.

  4. Everbody (also in german newspapers) talks this week about a return of the Euro crisis. So it will come back.

  5. It does not take much analysis to figure out that the EUR problems are not over. Sure, if one looks at the EZ with the lens of financial instruments, it may appear that the worse is over. Politicians like to use the stock market as a proxy for a recovering economy (Obama sure did it a lot), but the issue is really to understand the “structural” problems the EZ economy is facing.

    The EZ problems cannot be solved with some clever financial engineering. The power of the economic wizards is greatly exaggerated. In the end, the problem is an economy with a crony and corrupted elite and a spoiled work force.

    Think about it, not one thing has really changed in the EZ. To think that printing a bunch of EUR can solve the problem is naive at best.

  6. Yes, 25% unemployment in S. Europe and the rise of the Golden Dawn fascist party in Greece. Things are going swimmingly! If they “just take their medicine” a little longer I’m sure it will all work out. The problem with Germany after WWI was they didn’t take their medicine long enough for the medicine to work it’s magic!

    Then instead of forcing Germany to “take its medicine” after WWII, all their debts were forgiven! This resulted in unprecedented economic growth in the German economy, and decades of political stability in Europe, but it was a big mistake! They should have been forced to “take their medicine.” Just because the medicine didn’t work in the decade and a half after WWI was no reason to give up on it!

  7. Problems in the EU are not gone and will not
    Problems in the US are not gone and will not
    Problems in China are not gone and will not
    Problems in Japan… well you already know

    Our economic model is built on two pillars 1) rising demography 2) access to cheap resources, expecially energy. We “leveraged on” energy to produce cheap goods to be sold to a growing population of “young people” which need that goods to improve their life. Where are we now in the west ?

  8. For a fiscal union to even remotely become a reality in the EU standards would need to be adopted in all the member countries and that is just not going to happen at this time. Germans retire at 67 while in France they retire at 60 and on some of the other countries they can retire at 50 to 55. This is just one item that would have to change and is almost impossible to negoiate.

    Tax collection is another. Although easy to state what needs to be completed is, Europe needs a transfer system like the USA, the devil is in the details. We are dealing with soverign countries, not states.

    Until Europe can come together and have universal or common standards nothing is going to change. No matter what is stated by the Euro political elite, the problems will continue.

  9. Germany, constantly has to contend with “some” major players ganging up on her in a big way.
    Unbelievably, these “some” have also totally deluded themselves into assuming the high moral ground.
    The same “some” have grossly over dosed on debt for years and are like desperate, tired old druggies reaching the end of their tether.
    These same “some” have financial options that are now so desperately limited that they badly need a fix.
    New blood.
    These “some” rabidly resent the fact that Germany, whose economy, based on old established proven principles, has stunningly shown to most the rest of the world how wrong they were to sacrifice their manufacturing base on the advice of a parasitic financial sector.
    Germany is actually still governed by elected politicians and not totally controlled by the parasitic financial sector.
    The agenda is to corrupt Germany by pressuring her into making major monetary commitments to loser nations, thereby herself quickly becoming destitute, controllable and irrelevant, just like the “some”.
    Once Germany releases the money, it will be gone in a Nano second, as will her power.
    The unelected will then rule the globe unimpeded.
    “some’ is purposely not written in capitals.