Euro crisis: “Come on, Frau Bundeskanzlerin, history is knocking at your door.”

The Irish Times reports the comments by chief of the European Financial Stability Facility, Klaus Regling.

“There is zero danger,” Klaus Regling, chief of the European Financial Stability Facility (EFSF), told German daily Bild  when asked if the euro zone could break up. “It is inconceivable that the euro fails.

“No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically Europe would only have half the value without the euro.”

He doesn’t rule out the risk of contagion spreading to other European states, say to Portugal and Spain.

Meanwhile in The Guardian, Timothy Garton Ash argues that, if the eurozone is to survive, historic acts of [German] statecraft will be required.

Now in numerous respects, a more German Europe would be a better Europe. There are many things about Germany’s economic model – its productivity, its consensual labour relations, its focus on product quality, its penetration of emerging markets – that other European countries would do well to emulate. However, it is also true that the entire eurozone cannot simply become one big Germany, both because the eurozone is composed of structurally, historically and culturally different countries, and because the rest of the world could not take the imbalance that would result from such a large chunk of the world economy having a German-scale trade surplus. So Germany also has to cut its partners some slack, and do something about lifting its own domestic demand. The right balance may be: 70% other eurozone countries become more “German”, 30% Germany becomes less so. (Economists can argue about the proportions.)

In other words, for both economic and political reasons, there has to be a compromise. The challenge for German statecraft is to find this difficult but sustainable compromise, in the most intensive negotiations with all its European partners – and then to sell the result to its own reluctant people. The markets will not leave it much time. The future of the eurozone now depends on this German leadership. Come on, Frau Bundeskanzlerin, history is knocking at your door. And history only knocks once.

, , , , , ,

  • Mack
  • Pete Baker

    And what exactly does that add to the conversation?

  • Mack

    What has gotten into you?

    You open with Klaus Regling saying it is ‘It is inconceivable that the euro fails’. So a prominent economist stating that we could be nearing the end game for the Euro is surely relevant to that.

  • Pete Baker

    Read the rest of the post.

    Including the Timothy Garton Ash linked piece.

    Krugman’s post, in which he says nothing, is redundant.

  • Mack

    In fairness Pete that really only becomes apparent when you read the actual article in the Guardian.

    e.g. “If the eurozone falls apart, it will be because Germany did not do enough to save it”

    I haven’t read the whole article but it looks to be focused on the fiscal & balance of trade side of things. Important though they are (and they do threaten the future of the Eurozone). Krugman’s post suggests that the real threat to the Euro comes from a loss of confidence in the banks.

  • joeCanuck

    I have to agree, Pete.
    It might just be my relative economics illiteracy but but I couldn’t understand the second bit until I read all of Timothy Garton Ash’s piece, then it made total sense. Interesting food for thought in it.

  • Pete Baker

    That’s why I linked to it, Joe.

    I can’t copy and paste the whole thing.

  • Mack

    You do have this

    Meanwhile in The Guardian, Timothy Gartin Ash argues that, if the eurozone is to survive.

    I did a double take on seeing it, as I defo didn’t see it before.

    That’s a critical statement, your post does make sense, but it hangs on that phrase in the middle of that sentence. Fast readers are more likely to miss it than more conscientous ones. Maybe bolden it.

  • Pete Baker

    There you go, Mack.

  • joeCanuck

    I know, Pete. If I were to make a suggestion it would have been to shorten your summary giving a gist of it and, as you sometimes recommend, “Go and read the whole thing.”
    I wouldn’t claim for a minute that I could have done a better job of summarising.

  • Pete Baker
  • Alias

    He seems not to have noticed that Germany is nearing bankruptcy too, and will soon need a bail-out from the IMF. Germany has the 3rd highest external debt in the world, with a per capita share that is 8 times higher than the US. In fact, Germany’s citizens are more indebted than Spain’s citizens, so the Spanish should be bailing-out the Germans! Likewise, the French owe almost twice as much per capita as the Portugeuse.

    If you look at the list of the countries with the largest external debt, 15 out of the top 20 are EU countries and between them they owe almost 40 trillion US dollars in external debt.

    I haven’t added up the external debt of the other 12 EU member states but why bother when 40 trillion is more than enough to make the point that the EU is a debt-laden economic basketcase and a mass default waiting to happen.

    Plus, of course, Germany’s banks are the most over-leveraged banks in the EU, with no major German bank having a leverage ratio under a whopping great 52. In other words, one ever euro in capital that a German bank has it has another 51 euro in debt.

    Still, the euromuppets thought it would be a grand idea to bring a new currency to the market that was still in beta mode with none of the bugs ironed out.

    Some folks just don’t know when the game is up…

  • Alias

    Typo: “…for every euro in capital that a German bank has it has another 51 euro in debt.”

  • joeCanuck

    Excellent recommendation. Well written piece suggesting where we (Europe) are and what needs to be done.