…I do think that it would ultimately be better if the eurozone broke up. This might not involve a complete reversion to national currencies. A hard core of euro-users, centred on Germany, might survive. But the current euro will have to go.
It is true that the transition from here to there will be painful and dangerous. My colleague Martin Wolf laid out an updated version of the full horror scenario in Friday’s FT ”“ involving a breakdown of law and order in Greece, and financial collapse across Europe. How could anyone responsibly run that risk?
The answer is that the alternatives to eurozone break-up are inherently implausible and deeply unattractive.At the weekend G8 leaders called for Greece to stay in the eurozone. Their present plan seems to involve some magical mix of stimulus and austerity that restores both budgetary balance and growth. But even if they can agree a real plan and even if it works ”“ and neither outcome is likely ”“ the eurozone’s structural problems would remain…..
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This is very reminiscent of the history of conglomerates in the corporate world. Decades ago, it was all the rage to assemble disparate, profitable businesses into one entity under a corporate conglomerate umbrella. The thinking was that the synergies of corporate governance, policies & procedures, and strict financial oversight could only improve upon the individual business results. In summary, the whole was going to outperform and be more valuable than the sum of its parts. Well, it didn’t work. Mostly it just brought onerous corporate procedures and corporate overhead cost allocations, driving out the entrepeneurial spirit and nimbleness of the separate businesses.
The EU seems to be the governmental equivalent of the corporate conglomerate, and the social payments demands of the citizens echo the union demands of the corporate world. It all worked great when you had near monopoly power and could pass along ever increasing costs to consumers (or keep raising taxes for the government model). It’s all collapsing now, though. The trick is how to handle this collapse in an orderly fashion with the least amount of pain necessary to cure the disease, and without killing the patient.
In the U.S., however, Obama not only keeps increasing the size and cost of government, he makes up for it by draconian regulations that are squeezing the lifeblood out of business. I’m going to have to stop now, I’m too depressed.