"Instead of increasing intra-European harmony and global peace, the shift to [monetary union] and the political integration that would follow it would be more likely to lead to increased conflicts within Europe and between Europe and the United States."
--Martin Feldstein in Foreign Affairs, 1997
In an opinion piece in today’s Washington Post, Charles Lane [link further below], adds this:
"Feldstein foresaw that the trigger for political tension would be a sharp economic downturn, imposing different levels of unemployment on different members of the monetary union, because high-unemployment countries could not recover their competitiveness through currency devaluation."
and there is this analysis from an international certified public accountant firm:
"We are currently experiencing unprecedented levels of uncertainty in the Eurozone. The potential political and economic outcomes emerging from the Eurozone crisis in 2012 are disparate, although all share a similar theme. A harsh adjustment to a new fiscal reality will be unavoidable, regardless of the path politicians finally decide to follow.
"The Eurozone that re-emerges next year is likely to be very different to the one we know today and the implications for business within and outside this region are enormous. We spend a lot of time advising boards and senior executives on the scenarios that they should consider and their potential impact on their bottom line. In this report, we bring you insights from a range of distinctive scenarios that we are recommending our clients use to prepare for potential outcomes that could take place next year.
"Growing market pressure and significant tranches of sovereign debt due for refinancing by early Spring point at a likely resolution to the current phase of the crisis around the first quarter of 2012. Politicians have taken more than two years to face up to this moment. And the resolution they finally agree is likely to be implemented overnight in order to minimise market actions that can make it harder to implement."
--a report by CPA firm PriceWaterhouseCoopers (available at: http://press.pwc.com/GLOBAL/News-releases/pwc-outlines-four-potential-eurozone-outcomes-for-2012/s/14205036-2049-44c9-a3ff-44c220a55dc7
Charles Lane’s Washington Post editorial summarizes the report this way: "In the most benign, the European Central Bank takes mass quantities of bad debt onto its balance sheet and Europe avoids a depression at the expense of higher inflation and slower long-run growth.
‘The only difference among the other choices — organized default by the euro zone’s biggest debtors; a Greek exit from the euro; and the rise of a new, smaller euro zone led by France and Germany — is the depth of the recession each would trigger," writes Lane.
See: http://www.washingtonpost.com/opinions/the-man-who-predicted-the-european-debt-
crisis/2011/12/12/gIQAN1geqO_story.html
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
Notes from the Blog Author
What’s this?! "…significant tranches of sovereign debt due for refinancing by early Spring…" says PWC in their report (apparently out of London). That isn’t what the financial press is covering in depth. And PWC says this upcoming drop-dead refinancing necessity likely leads to a quickie overnight solution, intentionally not giving the market any time to think and react to the jarring, mandated change.
The Euro agreement never contained language allowing the central banking body to fire a compulsive debtor from the Euro, forcing any deadbeats out of the system and back onto an unstable, constantly self-devaluing local currency for any financially irresponsible member. The only way the Euro would ever have worked would have been to force any irresponsible parties to walk the plank. Such a policy still hasn’t been established. So failure of the Euro was always merely a question of time.
Conclusion: Martin Feldstein was right. And Margaret Thatcher was right.
--Martin Feldstein in Foreign Affairs, 1997
In an opinion piece in today’s Washington Post, Charles Lane [link further below], adds this:
"Feldstein foresaw that the trigger for political tension would be a sharp economic downturn, imposing different levels of unemployment on different members of the monetary union, because high-unemployment countries could not recover their competitiveness through currency devaluation."
and there is this analysis from an international certified public accountant firm:
"We are currently experiencing unprecedented levels of uncertainty in the Eurozone. The potential political and economic outcomes emerging from the Eurozone crisis in 2012 are disparate, although all share a similar theme. A harsh adjustment to a new fiscal reality will be unavoidable, regardless of the path politicians finally decide to follow.
"The Eurozone that re-emerges next year is likely to be very different to the one we know today and the implications for business within and outside this region are enormous. We spend a lot of time advising boards and senior executives on the scenarios that they should consider and their potential impact on their bottom line. In this report, we bring you insights from a range of distinctive scenarios that we are recommending our clients use to prepare for potential outcomes that could take place next year.
"Growing market pressure and significant tranches of sovereign debt due for refinancing by early Spring point at a likely resolution to the current phase of the crisis around the first quarter of 2012. Politicians have taken more than two years to face up to this moment. And the resolution they finally agree is likely to be implemented overnight in order to minimise market actions that can make it harder to implement."
--a report by CPA firm PriceWaterhouseCoopers (available at: http://press.pwc.com/GLOBAL/News-releases/pwc-outlines-four-potential-eurozone-outcomes-for-2012/s/14205036-2049-44c9-a3ff-44c220a55dc7
Charles Lane’s Washington Post editorial summarizes the report this way: "In the most benign, the European Central Bank takes mass quantities of bad debt onto its balance sheet and Europe avoids a depression at the expense of higher inflation and slower long-run growth.
‘The only difference among the other choices — organized default by the euro zone’s biggest debtors; a Greek exit from the euro; and the rise of a new, smaller euro zone led by France and Germany — is the depth of the recession each would trigger," writes Lane.
See: http://www.washingtonpost.com/opinions/the-man-who-predicted-the-european-debt-
crisis/2011/12/12/gIQAN1geqO_story.html
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
Notes from the Blog Author
What’s this?! "…significant tranches of sovereign debt due for refinancing by early Spring…" says PWC in their report (apparently out of London). That isn’t what the financial press is covering in depth. And PWC says this upcoming drop-dead refinancing necessity likely leads to a quickie overnight solution, intentionally not giving the market any time to think and react to the jarring, mandated change.
The Euro agreement never contained language allowing the central banking body to fire a compulsive debtor from the Euro, forcing any deadbeats out of the system and back onto an unstable, constantly self-devaluing local currency for any financially irresponsible member. The only way the Euro would ever have worked would have been to force any irresponsible parties to walk the plank. Such a policy still hasn’t been established. So failure of the Euro was always merely a question of time.
Conclusion: Martin Feldstein was right. And Margaret Thatcher was right.
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