The End of European Currency Union is Extremely Fucking Nigh

Your correspondent would like to point you to three interesting links that summarize the current state of affairs in the eurobanking crisis:

1. Sunday’s column by the Financial Times’ Wofgang Münchau (registration required; it’s worth the effort) argues that a disorderly breakup of the euro could begin in as soon as ten days at the December 9 summit meeting of the members of the European Union. Oh noes! At issue is whether Ze Germans will accept (or even can accept, based on their own constitution) enormous implicit fiscal transfers to the profligate spendthrift nations of southern Europe through a “eurobond” mechanism: a bond issued by the European Central Bank, the proceeds of which would secure the ability of troubled national governments to continue rolling over their debts at sustainable interest rates.

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Darkness Falls on the European Monetary Experiment

Since high school, I have been telling anyone who will listen that European monetary union is a hopeless vanity project that will eventually cause real damage to the entire continent and her trading partners, i.e. everyone on the planet.

In hindsight it may have been obvious (all too obvious) to the preening technocratic elite that monetary union necessitates fiscal union, which necessitates political union, which is what they were after the whole time.

It is becoming clear that a significant credit event in Italy could wipe out the entire capital base of the European banking system. In Europe’s gravest hour since the second world war you’d think the Germans would be the ones to put an end to kicking the can down the road, the odious “extend and pretend” game that bankrupted Russia in 1998.

And you would be wrong.

In widely reported remarks yesterday, German Chancellor Angela Merkel said to her own Christian Democratic Union conference-goers:

“The task of our generation now is to complete the economic and currency union in Europe and, step by step, create a political union”.

Even under normal circumstances, this statement would be remarkable. As the most highly functional European state, Germany has the most to lose from a fiscal union with Greece and a political union with the people who kept returning Silvio Berlusconi to power. There is no political appetite in Germany for consolidation, but there might be an appetite for a confidence vote if Frau Merkel is found to have drank Monsieur Sarkozy’s kool-aid.

Once a tasty idea gets into the head of an empire-building bureaucrat or an upwardly mobile politician, everything that happens (whether good or bad) validates the idea. See Tax Cuts, Bush. If everything that has happened in the eurozone since 2008 justifies further consolidation rather than an orderly winding down of the failed monetary experiment, there is simply nothing more to say.

For all of his fiscal failings (which are legion), Gordon Brown should take full credit for keeping Great Britain out of this mess despite the pleadings of his own party. Prime Minister David Cameron had the right idea in his remarks at the Lord Mayor’s banquet: Although membership in the European Union is still in the UK (and everyone else)’s interests, consolidation of any kind, whether monetary, fiscal, or political, is not.


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