The Next Euro Debate

An astute piece from Andy Watt. He thinks that we shall indeed soon see what markets are anticipating – the long deferred grand bargain, in which the ECB backstops euro bonds  (thus averting a banking and sovereign debt crisis), in return for which euro countries agree to  much enhanced surveillance of national fiscal policies.

That brings into question what policies will dominate in a more integrated euro political  space. On the one hand – and this seems the most likely given the stance of Merkel and the ECB – everybody could  be forced to impose austerity in the form of cuts to wages and attacks on pensions and social programs.  On the other hand,  surplus countries could pick up the slack and expand so as to allow deficit countries to re-adjust.

“On the one hand there is the view that the core/surplus countries pay but the periphery/deficit countries adjust under the rod of the ECB and/or Commission. This is the view that has dominated the debate so far. Put most simply the position is: everyone must become like Germany. The alternative approach amounts to combining  generous European solidarity with a recognition of mutual responsibility by all actors and thus the need for symmetrical adjustment….. If the price of debt mutualisation and ECB support is one-sided debt brakes,  generalised austerity and attacks on collective bargaining institutions and welfare states,  it will not be a price worth paying.”

3 comments

  • So my question to the new belt tightening Euro deal- what happens if the belt is about as tight as it can get?

    And what happens if this “remedy” kills the patient as the notions seem based on fantasy and not economic empiricism or theory- recession will deepen making the whole belt tightening turn to a deeper recession/depression starvation diet.

    So I guess the question is, what is plan B, as plan A is sure to fail. Not sure why we have so much optimism. The way I see it- we are going from random crisis with no solution, to a planned crisis without a solution.

    Now if we seen some action within the core to enable a balancing based on progressive change and realisitic injection of social and economic infrastructure into the periphary then potentially it could work out legitimate forces promoting imbalances.

  • “That brings into question what policies will dominate in a more integrated euro political space. On the one hand – and this seems the most likely given the stance of Merkel and the ECB – everybody could be forced to impose austerity in the form of cuts to wages and attacks on pensions and social programs.”

    I’ve seen it argued that this is the whole point–that the ECB’s refusal to act amounts to a shakedown: Countries in the Eurozone give us lots of austerity and inequality, kill social programs, labour rights etc., or . . . well, that’s a nice little financial system you got there; be a shame if something happened to it.
    http://www.counterpunch.org/2011/12/02/one-bank-to-rule-them-all/
    “Europe is being handed over to big finance on a silver platter. This isn’t a crisis; it’s blackmail.”

  • A fairly cool decision tree on Greek Debt solutions and where we are at. (well at least what is fenced in, who knows where the herd will end up and who gets stuck with the hair cuts)

    http://www.economonitor.com/blog/2012/01/greek-bond-default-decision-tree/

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