Euro crisis : Euro as we know it is dead – plus – Stiglitz and Hendry head to head.

Jeff Randall in the Telegraph proclaims the Euro as we know it to be dead, despite the valiant rearguard action currently being fought by Angela Merkel

In one respect, Mrs Merkel is right: “The euro is in danger… if the euro fails, then Europe fails.” What she has not yet admitted publicly is that the main cause of the single currency’s peril appears beyond her control and therefore her impetuous response to its crisis of confidence is doomed to fail.

He gets full marks for stating the obvouis and highlighting Greece as the Euro’s weak link. Greece owes it’s place in the Euro to tissue of lies, which stated another way means it didn’t meet the onerous terms of Euro membership in good times and is unable to live with them in bad.

This is why the euro, in its current form, is finished. The game is up for a monetary union that was meant to bolt together work-and-save citizens in northern Europe with the party animals of Club Med. No amount of pit props from Berlin can save the euro Mk I from collapsing under the weight of its structural dysfunctionality. You cannot run indefinitely a single currency with one interest rate for 16 economies, when there are such huge fiscal disparities.

What was once deemed unthinkable is now, I believe, inevitable: withdrawal from the eurozone of one or more of its member countries. At the bottom end, Greece and Portugal are favourites to be forced out through weakness. At the top end, proposals are already being floated in the Frankfurt press for a new “hard currency” zone, led by Germany, Austria and the Benelux countries. Either way, rich and poor are heading in opposite directions.

True, but for now Germany continues to spend massive resources supporting the Euro. Randall sees this as it’s doom, as we have pointed out repeatedly on Slugger the tabloid German press is not particularly supportive of this situation.

Protecting the euro has become a project via which profligate states dip their fingers in Berlin’s till. Germany is taking on nasty obligations without gaining ownership of the assets. Germany’s version of The Sun, Bild Zeitung, feeds its readers a regular diet of stories about the way ordinary Germans are being taken for mugs. Trust has turned to suspicion. Next stop is divorce.

So we have grinding deflation for the PIIGS, while at the same time as cuts are made, Germans feel angry about bank rolling other nations profiligacy. How long before alternatives are seriously broached? It would appear, at least that serious plans are being made to manage default within the Eurozone.

By announcing a ban on the activities of short-sellers (those who bet to profit from falling prices in financial markets), she is hoping her decoy will avert German attention from the small print of Berlin’s support for Greece, which talks of developing processes for “an orderly state insolvency”. This sounds ominously like a softening-up process for a form of default.

P.S. I missed this video back in Feb, US centre/left Keynesian economist Joe Stiglitz goes head-to-head with hedge fund promoter Hugh Hendry on Newsnight (the Spainish ambassador to the UK also makes an appearance), discussing the Euro crisis. There is validity in both arguments, Hendry has been proved right that a Greek bailout solves nothing while Stiglitz wants greater fiscal solidarity within the Eurozone (he makes a stronger reform or die call here)

http://www.youtube.com/watch?v=E4MAifsp-8E