Europe: on the verge of a mess
“The euro will survive. It is not questioned.” So said European Central Bank (ECB) council member Erkki Liikanen last week. Well, it’s being questioned now. The euro crisis has moved way beyond investors fretting about whether Portugal or Spain will go bust next. The existence of the single currency itself is at stake.
As Dylan Grice of Société Générale observes, you can easily judge how far along we are in a crisis, simply by looking at which stage of denial policy-makers are working their way through. At first, they’ll deny there’s a problem at all – take Federal Reserve chief Ben Bernanke’s assertion that there was no US housing bubble. When that fails, they’ll deny that it’s a big problem – sub-prime was going to be “contained”. Finally, when it’s clear that there is indeed a big problem, they’ll pass the buck – as the attempts by governments to scapegoat short-sellers and ‘speculators’ for the financial crisis show.
Now it’s the turn of the eurozone. The ECB president, Jean-Claude Trichet, warned this week that investors tend to “underestimate the determination of governments” to hold the euro together. I’m sure they do. A break-up of the eurozone would result in huge loss of face for those who had invested so much political capital in the project, not to mention the financial chaos that would ensue.
But the cost of staying together is also too high…
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The future is still Japanese