Nosemonkey's EUtopia

In search of a European identity

The euro crisis: What next?

Random thoughts – because, let’s face it, no one knows what’s going to happen and most economic predictions over the last few years have proven utterly mistaken.

To note: I’ve always been euro-sceptic.

Yes, that was deliberately hyphenated: I’ve never been entirely convinced of the benefits of a single currency for a group of economies as diverse as those of the EU – and this even before I’d heard the term “optimum currency area“.

That’s not to say that I don’t think that a single currency would be a good thing for Europe *eventually*. But my use of “eventually” when it comes to European integration is normally looking far longer-term than pretty much any politician ever does. I’d expect pretty much everyone capable of reading this to be dead before conditions in Europe are optimal. (And that’s being optimistic…)

Anyway, lest I digress – after reading various interesting, highly contradictory articles from various self-professed soothsayers from all over Europe (and beyond) over the last few days, here’s my ranking of the likelihood of the various “what nexts” I’ve seen mooted, in approximate order of likelihood:

1) Another Greek bailout
2) Greek default & risk of contagion
3) Greece leaves the eurozone
4) Germany leaves the eurozone
5) Dissolve the euro & start again
6) Full political integration
7) Give up and dissolve the EU
8) Britain joins the euro to boost confidence & stability (yes, this really has been suggested…)

Finally, a bit of random reading – I may well keep this updated as I come across more:

Just how serious is the Greek debt problem? – Deutsche Welle asks a bunch of economists what they reckon. Decidedly more restrained than much coverage, with varied viewpoints. A handy overview, and a good starting point for newcomers.

Beware Eurosceptics bearing gifts – one of the most sensible, restrained pieces I’ve seen. From, as ever, David Rennie of The Economist. Key quote: “Pretty much every option looks bad.”

Time for Plan B: How the Euro Became Europe’s Greatest Threat – the article everyone’s been talking about, from Der Spiegel. Worth a read – while also worth noting that it only mentions the word “exposure” twice in what is a *very* long article. The omissions are as important as the (sensible) key point that the way the euro was set up was based not on sound economics, but on political wishful thinking. People who only skim the section-headings (like “The Euro is a fair-weather construct“) are likely to miss the subtleties of the – decidedly German – argument. Fascinating piece, but to be read with a critical eye.

Imperial Germany – eager to bury the euro – a Greek response to that Spiegel article. A strong response – sample quote “Berlin has shown that it wants to distinguish itself through the implementation of a selfish nationalist policy that will break nations and states that are unable or unwilling to follow in its footsteps” – but worth reading.

Banks have £1.6 trillion exposure to ailing quartet of Greece, Ireland, Portugal and Spain – from the eurosceptic Telegraph, scary numbers putting Britain’s likely £1bn contribution to a second Greek bailout (via the IMF, not the EU) into some kind of context.

Greek Debt Crisis: how exposed is your bank? – handy chart showing likely impact (could do with additional ones for exposure to Irish / Portugese / Spanish debt too, in case there’s a domino effect…)

Eurozone debt crisis – to restructure or not? – from the Centre for European Reform, a normally decidedly pro-EU thinktank that’s turning decidedly hostile (justifiably so, some might say) in recent days. Key quote: “All this could poison European politics without resolving the economics”.

Hell, for that matter, *all* the Centre for European Reform’s recent publications on the euro crisis are well worth a read

Can the Eurozone be saved? – From Foreign Affairs back in April, but still worth a read – especially for explaining in simple terms just why this current crisis is unique and utterly unpredictable: “In the eyes of markets and skeptical observers, the European Union is more than an intergovernmental organization but not yet a state. When the European Union bickers and dithers, the markets have no idea what may happen.”

Wednesday additions – catching up with the blogs:

The gloom of having no good options – Conor from The European Citizen sums up: “At the moment the best option seems to be to accept the bad austerity and bail-out deal and forge ahead with reforms in Greece with at least the thin cushion of EU/IMF loans rather than no loans at all and hope that either (a) the EU gets its act together; or (b) the painful austerity will help Greece just enough so that it can partially default in a more managed way in a year or two when the prospects are better for it and the EU. Neither option is an inspiring or very sellable one.”

Euro(w)s… Democracy versus Sovereignty – A Bit More Complicated… shows how, well, it’s a bit more complicated, giving some much needed historical/theoretical context: “The question is that old point of “no taxation without representation”. In a bailout situation between states, it is not only the taxpayers of Greece who have a legitimate interest in how Greece handles its debts but the taxpayers of the countries providing the help via the IMF and the Eurozone… welcome to the complicated world we live in.”

Greece’s unnecessary crisis – could more decisive action have prevented this situation? Yes, argues George Irvin at the Social Europe Journal blog: “the real lesson of the Greek debacle is not that that peripheral countries should exit the eurozone (although that is now a distinct possibility); rather, it is that the current situation results from the increasingly rightward drift of Europe and the short-sightedness of our political class.”

Delaying tactics are only increasing the costs of the eurozone crisis – the Open Europe blog (rarely somewhere to avoid giving the EU a kicking) seems to agree.

The road to “new European reunification” runs through Greece – The German Marshall Fund blog does a superb job of putting a complex situation into some kind of context, and is worth quoting at length:

“EU Commissioner for Economic and Monetary Affairs Olli Rehn rightly stressed in late May, “There is a certain aid fatigue in all of northern Europe [and] a certain reform fatigue in southern Europe.” Nearly a month later, nothing has changed. Yet both the United States and China have upped the ante by signaling that an uncontrolled debt spiral and string of defaults in Europe could be disastrous for their own economies. So what should the EU do? And, importantly, what will be the lasting legacies of any measures it takes?

…the fear of a financial and economic chain reaction has accelerated the EU’s integration by pushing institutions and member states to quickly decide on issues of governance, accountability, and leadership; essentially to agree on the politics of European economic policy. Through this process, all involved are framing the limits of their powers and responsibilities. This week, European leaders will set the new terms of Europe’s economic union. In a year’s time, they have been asked to agree on strategic decisions they have postponed for decades. Beyond the Greek sovereign debt crisis lies the more profound issue of European political integration; Europe needs a “new reunification,” this time of the North and South. Yet with the economic and social struggles ahead, and in the face of a slow recovery, Europe also needs strong political leadership to look beyond special interests. Only tough political choices today will make the sound policies of tomorrow.

“…It is not just about the economics. Today’s struggles have a lot to do with regulating economic policy and affirming institutional power. In this sense, the “invisible Brussels” might not easily restore public trust in the EU, but profound changes are underway. Hasn’t the ECB already emerged as a central actor to any economic decision? Hasn’t the Eurogroup become the true hub of European economics? Hasn’t the European Parliament used the opportunity of reforming economic governance to promote further Commission oversight of national economies? Whatever one calls it, the EU is in a period of adjustment or transition or adaptation to a new paradigm — there will be a new equilibrium calling for new policies. Europe will be stronger because it will be different.

“…The European debt crisis and its repercussions might be this generation’s tragedy, but it might also be its opportunity to deepen the EU’s integration. It could be its New Deal, its Marshall Plan, its Reunification. European leaders owe their people a political stance — the time has come for a new Declaration, not just another Statement. EU “founding father” Jean Monnet believed that “we only have the choice between changes we are forced to make and those we wanted and were able to achieve.” This week, paradoxically, Europe will be forced to make the changes it always wanted but never dared to achieve.”

Worth reading in full, that one. One of the most interesting pieces I’ve seen on this whole mess.


  1. Dear J.,
    Here’s another thought:
    Philosophically speaking, bailing out Greece is the penalty Europe will continue to pay until it decides to fully integrate.
    Best regards

    • agreed

      But that doesn’t resolve the Greek State structural issues : as long as you’ll have a political establishment that enshrines corruption and arbitrary enforcement of laws, Greece will remains a black sheep in the euro area … and that will weigh heavily against other CEE countries who try to join in.

      Compared to cordoning off the financial fallout from a Greek debt restructuring, this exercise in “state modernisation” is pretty much at the source of the anger and restlessness of northern Europeans (not limited to Germany).

      @nosemonkey : most tabloids are running large articles about Open Europe “no to a 2nd Greek bailout” call. The Telegraph having several of them since yesterday for whatever can be used to diss the euro/EU/europeans …

  2. Pingback: No-one is really sure what will happen if Greece defaults | Flip Chart Fairy Tales

  3. an interesting “out of the box” comment by Jeremy Warner in the Telegraph :

    I won’t hold my breath for that same paper extolling the benefits of the CAP, but they sure don’t mind the business opportunities arising from it :

  4. I do get frustrated that at no point will any left winger admit they were wrong. Wrong about the moral parity between the USSR and the USA since airbrushed from Labour`s history, wrong about a sustainable level of spending, wrong about the efficacy of borrowing more and throwing it at our own sclerotic corrupt Grecian economy, wrong wrong wrong. Now, having inflicted what promises to be a catastrophe on countless people Nose Monkey is suddenly agnostic on the Euro. Pound to a worthless piece of paper NM was less obviously so at the time when I ,quite rightly thought the idea was a hideous mistake.

    The collapse of the single currency is not incidental to the European fantasy. There are many parts of the UK equally blighted by state meddling, the North East for example but as there is an identity of shared responsibility Newcastle`s deficit is not an issue.
    Not a penny should leave this country to further assist the Greeks in sinking into the mud .They borrowed more in the first six months of this year than the whole of last year and the extent of indebtedness when you are bankrupt ceases to be an issue (Economists …please join psycho therapists and herbalists in the “talk crap for money section)

    The whole thing is now a cartoon character still running in thin air and time would be betters spent salvaging the little good that has come from the billions squandered as it breaks up.
    Time will prove me right but there will no doubt be dreamers who sit around moping the way milky eyed buffers did for ‘their’ Empire in the 60s.

    Enjoy your mortification NM , more to come.

    • First, I am not and never have been economically left-wing. I see the EU as beneficial from a centre-right perpective, economically – for its potential to promote free(er) trade.

      Second, to your claim that “Newcastle`s deficit is not an issue” – it was during the 70s and 80s though, wasn’t it? Not just Newcastle, but the old mining areas as a whole. They were in deep economic trouble while the City of London and south were booming, and there was a massive deepening of the north-south divide, both economically and culturally, as the south resented propping up the depressed north and the north resented the patronising approach of the wealthy south.

      Third, your “Not a penny should leave this country to further assist the Greeks in sinking into the mud” – not even to protect the vast amounts of British money that could be lost if Greece defaults (click the links above, old boy – that’s what they’re there for), like the Telegraph’s estimate of £1.6 trillion in liabilities if there’s a domino effect? (And, please note, after Greece’s last bailout there *was* a domino effect – the same is likely to happen if she defaults.)

      Third, to your utterly unfounded claim that I am “suddenly agnostic on the Euro” – based on assumption and ideology on your part, old boy, not the facts.

      I’ve been utterly consistent in my approach to the euro – I’ve always argued that there simply isn’t enough information to make a sensible judgement on its merits, that the experts disagree, and that I’m in no position to judge. I’ve never been a supporter of the single currency (except in as far as it makes life much easier when travelling):

      Me on the euro, July 2005:

      “The real question, of course, is whether the euro can ever achieve all that has been claimed for it. As of yet, there is little in the way of overwhelming evidence to support claims that the euro – and, importantly, the euro alone – has been responsible for ‘price stability, low mortgage rates, easier travel, protection against exchange rate fluctuations and external shocks’

      …when it comes to this sort of thing, better the devil you know is a fair enough line to take until the evidence becomes overwhelming. The evidence isn’t yet overwhelming – hence Gordon still saying his tests aren’t passed – so no one but the most fervently ideological is going to be convinced. That simple.”

      Me on the Euro, September 2004:

      “The economics may not be “right” at the moment; they may become “right” at some point in the future – if we join then, that will be beneficial for Britain. But economic conditions fluctuate unpredictably all the time. No one predicted the Wall Street Crash.

      “In other words, joining the Eurozone will ALWAYS be a risk, just as staying out will always be a risk. Economics is not predictable. So we may as well take the plunge now – we have no idea how Britain will continue to survive outside the Eurozone, we have no idea what will happen if we join.”

      Me on the euro, October 2008:

      “This whole episode is already going to prove that a single currency simply isn’t enough, that the levels of integration that the EU has so far achieved are simply not enough, that when it comes to the (credit) crunch, we all still look out for number one first, and sod the rest of the continent. Some may even take it as a sign that the old hope that the EU can provide prosperity and insulate from hardship was a false one. It’s all far too early to say… The only thing that is certain is that no one knows where this is heading. Until we do, I’m going to try and refrain from adding to the reams of inaccurate guesswork.”

      Me on the Euro, November 2008:

      “This recession is going to be the major test of the idea of the Euro – if it fails that test, it won’t just be the UK that gets cold feet”

      Me on the Euro, July 2008:

      “Everyone loves a good recession! It’s now a race to the finish line – who’s going to make it first, the UK or Eurozone? (Far more exciting than the Olympics, this…)

      …the real question is longer-term. If the Eurozone enters its first recession at the same time that the EU is doing the headless chicken act over the Irish Lisbon Treaty referendum result, what will be the impact on the long-term viability of the EU as a whole? With the economy looking shaky, will the countries of Europe look to the European Central Bank in Frankfurt or to their own national banks for stabilising measures? And can the ECB – only in existence for a decade, lest we forget – handle the tough times as well as the easy? Well, some analysts think the signs point to a big fat no”

      My “mortification” is nonexistent – except inasmuch as I am very worried for the families who are being directly hit by this crisis. A crisis made by the banks, and worsened by the politicians. The euro seems not to have helped – but it also didn’t cause the problem.

  5. The North East,as a country would be more state dominated than Cuba ( seriously more state monopoly money paid than real money its a joke). If the South East (the only tax exporting region outside London)loaned it money in the form of bonds it would have defaulted years ago. That is not the same as grumbling, I grumble about my wife spending too much.
    The notional positions venture capitalists may hold with Greek Companies and individuals has only a weakly tangential relation to guaranteeing to the Greek State which in any case is quite obviously a waste of time. This BSN( Big scary number) is actually a tiny amount compared to the same figure that might be spun for any country .It is ad hoc nonsense basically and unworthy of you NM.
    We would not suffer at all if Greece was cut loose, I seriously doubt whether Ireland`s fate is as much entwined with ours as is pretended but there is at least a case for real world trade.

    On your previous – ..ok fair enough

    Thanks for links

  6. Since most of the fear of sovereign debt defaults hinges on bank’s ability to sustain the losses, here is Slate’s take on bank capital requirements.

    “European banks—and the European economy—would benefit from stricter capital requirements”

    “Why stricter capital requirements wouldn’t have prevented our most recent financial crises” :

  7. A regular meme of UK Eurosceptic is that the current financial crisis in Europe (sovereign and bank debts) is completely due to the ECB “one-size-fits-all” monetary policy.
    whereas a truer culprit would be found in the uneven banking regulation practices at the European level, and the insistance of national governments to keep control/supervision of transnational banks, even though they were “too big to save” if worst came to happen (think Ireland or Iceland).

    An interesting analysis by Patrick Artus at bank Natexis :

    It looks at the relationship between ECB rates and its effects on various economic indicators for the Eurozone.
    Of interest, is the relationship broken down by countries for household (mortgages) and corporate debts depending on the prevalence of fixed or variable rate lendings.

    Table 1
    Share of variable rates in mortgage loans (%, 2009)
    Variable rates Fixed rates
    Germany 15 85
    France 35 65
    Italy 85 15
    Spain 95 5
    Austria 58 42
    Belgium 52 48
    Luxembourg 81 19
    Finland 97 3
    Netherlands 44 56
    Ireland 92 8
    Portugal 98 2
    Greece 88 12

    their conlusion is that, the more variable rates are used, the more sensitive an economy is to the central bank rates … and without proper banking regulations, on bank capital ratios or lending practices, you can easily end up with an overhang of private/household indebtness.

    but not all countries relying on variable rate mortgages suffered the same problems : Cyprus, Greece or Portugal, though attractive potential targets were not Spain or Ireland.
    And though France was a privileged destination for UK residents looking for a second home (just after Spain) didn’t go through a bust either.

    the housebuilding crashes observed in Spain and Ireland can be traced to :
    1) the lack of proper banking and land registry supervision (through the cozy relationship between homebuilding societies and local councils in particular),
    2) in a context of easy-to-access mortgages and highly leveraged banks (ie: 1 EUR/GBP/US lent by a central bank could be leveraged 30x times more by financial organisations).
    3) the oversized contribution the construction sector was for the national economy (relative to GDP or tax incomes)

    Best regards,

  8. The problem of the EU is that it is underpinned on shaky philosophy. The real issue is that-despite what the bureaucats try and do- national allegiances are not being superceded by ‘EU’ loyalties. Good article linked here…