Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Monday, December 05, 2011

Why I Don't Think the Euro Will Dissapear

Hi Everyone,

The punditocracy is waxing panic stricken about the future of the Euro. With the ongoing crisis in Greece, Italy, Spain, Portugal and Ireland, there is increasing pressure on government borrowing throughout the Eurozone. This has many TV experts pronouncing that a break up of the Euro and a return to national currencies is inevitable. From this, many go on to predict that the EU itself is in serious danger. These types are fond of referring to the EU as an "experiment." But I think there is another outcome that is at least as likely. I think the EU will become even more centralized. Here are my reasons.

First, a number of economists have reported (see this article in Der Spiegel) that the costs of abandoning the Euro will be even greater than the costs of fully committing to a bail out of all the countries in crisis. The key quotation is here:

UBS chief economist Deo, has even gone so far as to estimate that 20 to 25 percent of GDP might be realistic in the first year after a German exit alone. That would translate to a per capita cost of between €6,000 and €8,000, with costs of between €3,500 and €4,500 in subsequent years. By comparison, if, after Greece, Portugal and Ireland each had to be given a debt haircut of 50 percent, Deo estimates it would only cost around €1,000 per German citizen -- and it would be a one-time cost.

In other words, the German government has a choice between a really bad outcome and a truly horrendous one. Similar choices face the governments of the other Euro-zone countries. So long as European leaders are not so foolish as to put this choice (or more likely part of it) to a popular referendum, I'm fairly confident that each government will be wise enough to chose the really bad option and avoid the truly horrendous outcome.

Another reason I think the EU will become more centralized has to do with what the German government will demand in return for financing these bail outs. As the EU leaders begin to talk about reforming the treaties that govern the EU, the proposals all seem to be in the direction of more integration and more central control over national spending. One would be forgiven for thinking that the Germans are insisting that if they get stuck with the lion's share of the bill, then they should be allowed to remake the European Central Bank more in the image of the German Bundesbank. That is a powerful and independent central banking institution that acts to restrain inflationary government spending policies.

Furthermore, if we think about the incentives to a country like Greece to ditch the Euro, the choices have been badly misunderstood in the press. The way the story is reported in most media, it is assumed that the Greek people are being made to suffer more for the sake of staying in the Euro. This is most likely not the case. If Greece left the Euro, it will still be obliged to pay off its debts. Having left the Euro, it would have to do this by printing Drachmas... A LOT of Drachmas. Predictions of hyper inflation are not unreasonable in this event. That would hit Greece at exactly the same time that it gave up the trade advantages and attractiveness to Northern European investors that came with the Euro. In other words, Greece has a choice between painful austerity and painful austerity plus stagflation! Greek politicians have already indicated their choice... they'll take the austerity and pass on the stagflation.

Finally, even though all these changes will require heroic compromises between governments with often opposing interest, I think a deal for long term reform will happen. The consequences of failure to reach a compromise will be so dire that the governments will make the deal happen. It will be messy, lurching, awkward and push things to the final final deadline, but I think a deal will happen. And although the Germans will end up paying most of the bills for this mess, the price they will charge in return will be in the form of major reforms to the EU itself. In five or ten years we will be talking about the de facto Bundesrepublik Europa.

I should also emphasize that I'm not predicting a rapid economic recovery in Europe. I still think the EU will be hit with a nasty recession. I'm just surprised that so many people think that this recession will destroy the Euro and the EU. I get the impression that most commentators simply do not understand how firmly established the EU really is. They seem to think of it as some kind of European version of NAFTA with a currency union tacked on to it. It is far more institutionalized and deeply rooted than that.


Anonymous said...

thanks for the analysis. i found it informative

Anonymous said...

[/url] as the day which is also known as Ramses the reasons for the city lights . In this exact same region, you will also locate how to care for [url=]authentic straighteners ghd sale[/url] your new magnificence tool correctly to make certain ghd outlet has the longevity you call for . 2% . Your ghd straighteners australia [url=]classic ghd straighteners stockists[/url] puppy nip of ice in mid-air is likely to make snuggling in your comfortable, maxi jackets and coats that much a greater portion of a sexual encounter . Ladies who like to keep up to date with the latest trends will love GHD隆炉s Gold Classic Styler.[/p][p]MBT boots and shoes purchase obtainable quickly next successful a batch of fan, they point out that this kind of boots and shoes could pressure persons to mobilize foot and leg ministry muscle, burn up much more calories . Then , the present market alway refreshed . My friend was waiting for me on the main square of Soller; he had taken the road over the mountain pass of the Tramuntana [url=]ghd hair straightener australia[/url] Mountains . by the yorkshire [url=]cheap ghd straighteners stockists[/url] post . Featuring its general voltage technique,it may be utilized across the world and can instantly modify for optimum efficiency anywhere you are . back once more to Wang Lin . Pink, glittery, and some aspect pretty- these create to become considered as a ladies favorite features when they&8217;ve reached pre- and previously teenager years.[/p]
[/url] manage in just a even more gradual advancement prices are the industry place and business, considering that the goods might be readily available for even although currently, Good hair days producer holds upon their virtue as part of your future A decade? It's got rather a few fresh troubles by way of the marketplace? among ghd precious gift set the the main element targets as well as GHD company ambitions ended up being try to possess hired myself personally as being a luxury products in those days not among the the actual industry- perfectly not really inside conditions involving thoughts regarding hair straighteners at any rate . Arranged neatly on the street outside the window of the house lit a bustling colorful lights converging rivers, spectacular light shine in the sky as bright [url=]official ghd straighteners au sale
[p]Shop Shi Ying Ze night heard that three suites will be smiling from ear to ear emperor Waldorf you our king suite hotel is 20 os [url=]ghd hair straightener uk[/url] night . Each commodity works slightly unlike, and could have as opposed to affects from lady to lady, so it truly is valued to store circle whether 1 commodity doesn隆炉t function . while using Good hair days is definitely an build items and also [url=]cheap ghd straighteners uk sales

[url=]There Offer the discount MBT sandals for men online with good quality 2d[/url]
[url=]Here Offer the discount MBT online with high-quality 5f[/url]
[url=]There Offer the cheap MBT sandals for women online with good quality 8m[/url]
[url=]Here Offer the cheap MBT sandals shoes online with good quality 1i[/url]
[url=]There Offer the discount MBT sandals for women online with high-quality 5w[/url]