eurobongs

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The Guacamole Hits the Fan: “Ten Days to Save the Euro”

From the Guardian:

9.18am: Just in case anyone was in doubt about the situation today, EU monetary effairs commissioner Olli Rehn has warned that Europe has just 10 days to “complete and conclude” its crisis response.

The markets for the last six months (and longer) have been crying out for the ECB to go postal, print a tsunami of new paper, buy every troubled asset going, and (ahem) “save the world”.

Stern teutonic monetarism has won the day.

Either that, or Eurocrats see this as a fantastic opportunity to consolidate the Eurozone into a full blown fiscal union:

Now it’s the turn of Herman Van Rompuy, president of the European Council, to sound the alarm. He just told a conference of EU ambassadors that Europe is trapped in a “systemic…full-blown confidence crisis.” Some may blame it on the irrationality of the market. But it’s a fact and we need to confront it.” What’s the solution? Van Rompuy argued that Europe must swallow closer fiscal union (as Germany, for example, has long demanded): “We need a significant step forward towards a real economic union commensurate with our monetary union.”

Don’t these people understand that such measures always come with massive unforeseen consequences? Here’s a rule of thumb any idiot can use: more centralisation means more systemic fragility. Proponents of any such centralisation have to weigh the benefits against the fragility, because when the black swans begin to flock excessive fragility tends to mean collapse.

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Krugman on Why the Eurozone is in Big Trouble

I’ve been quite explicit about my disagreement with Paul Krugman. His view is that the main problem in America’s economy is a lack of demand that could easily be reversed by a big enough fiscal stimulus. My view is that lowered demand merely reflects underlying structural problems, very often at a global or systemic level. Big stimuli would make the problems go away for a few months or years, only to re-emerge at a later date if the underlying causes aren’t addressed (as I discussed in more depth here).

But he’s definitely onto something (as opposed to on something) today. Here’s a Venn diagram of the road ahead for Europe:


The real question is whether or not Professor Krugman would include a fake alien invasion (to create spending and raise demand) in the “things that might actually work” category.