Euro crisis: “Here endeth the lesson from the voice of calm.”

Even though the EU Finance Ministers meeting in Brussels didn’t have the details of that special vehicle for bailing out eurozone governments to sign off on, the BBC’s Stephanie Flanders still believes in “the voice of calm”.  Me?  I’m still sceptical.  As Stephanomics admits

In the end, these imbalances always come home to roost – the private-sector bubble that was causing them bursts, and one way or another the borrowing is shifted onto the public sector. And governments have to do a lot of painful things to bring it down.

In Britain’s case, and Thailand’s, devaluation was the route back to competitiveness for the private-sector economy. As we know, that route is not open to the likes of Spain. And if Germany won’t allow German inflation to rise above 2% (which it won’t), these countries will need years of falling prices – and possibly shrinking nominal GDP – to climb their way out.

Germany is very much in favour of this kind of “convergence plan”. It is not interested in making it easier – through higher German inflation, or higher German domestic demand, or higher German public borrowing.

So – with the best will in the world – this “better co-ordination process” being discussed today looks set to be an exercise in co-ordinated drudgery for large parts of the eurozone. And there will be another large part of the global economy looking to the rest of the world to provide its growth.

That is a pretty nightmarish scenario for the voice of panic to focus on.


And from the RTÉ report, I don’t think the German Finance Minister was referring to his European colleagues…

Summoned by EU President Herman Van Rompuy, the ministers are to come up with workable ideas to ensure the 27 national governments take greater shared responsibility for the EU’s combined economy, the world’s biggest trading bloc.

Some market analysts have speculated that failure to crack down adequately could break up the 16-nation eurozone.

Economic tension is already high despite French President Nicolas Sarkozy moving yesterday to deny a rift with Germany.

In Berlin, the tone remained sharp with Finance Minister Wolfgang Schaeuble defending a unilateral move to curb speculative trading by saying: “If you want to drain a swamp, you don’t ask the frogs what they think of the situation.”