Is the Euro well and truly buggered?

How long will the German people put up with all this financial bailing out

Will the Euro survive? (Albeit in a smaller "core" of healthy economies.

Do you care?

1.Major unrest in France. General ongoing Strikes. Votes of no confidence, etc.

Backlash against Sarkozy whatever he does (he's not popular here anyway), resulting in the god awful prospect of the aforementioned Martine Aubry being in charge.

Greece will default and leave the Euro, with a reasonable to strong possibility that Italy and Spain will go the same way

The Eurozone will shrink to a small group of Northern European countries, with Germany relegating France to the sidelines and basically taking over the whole thing. For future Euro, just think glorified Deutschmark.

The one thing that I can't help quietly smirking about with all of this, is the fact that the French government got all sniffy and superior when the US and British banking systems went into tailspin about three years ago, patronisingly calling it "The Anglo-Saxon model", as opposed to following their State driven economy

Polish Finance Minister Jacek Rostowski


SPIEGEL ONLINE: Everybody acknowledges the need for greater coordination of economic policies in Europe. The question is whether there should be an economic government comprised of all 27 European Union member states or whether it should just be within the 17 euro-zone countries?

Rostowski: Everything that can be done within the 27 states should be done there. Those things that have to be done among the 17 but do not need to be considered among all 27 can be handled by the euro-zone members. Sometimes, however, it seems there is a tendency on the part of some euro-zone members to exclude the other 10 EU countries because that might make decision-making easier. That can only be acceptable in situations where it is absolutely necessary for the proper functioning of the euro zone.
SPIEGEL ONLINE: As a country which is not a member of the euro, would you not object to a two-speed Europe ?

Rostowski: It is quite clear that we need a great deal more macroeconomic integration within the euro zone. We are very much in favor of that, as is the United Kingdom. The reason is very simple: If we do not have greater macroeconomic integration, then we face a high probability of the dissolution of the euro zone. That would be an absolute catastrophe for everybody. Not only for the deficit countries within the euro zone, but also for the surplus countries where unemployment world soar to levels not seen since World War II. It would also be a catastrophe for the other EU members who are not part of the common currency. Given that choice, we are definitely in favor of greater macroeconomic integration.

SPIEGEL ONLINE: Why have you dismissed proposals for an economic government by German Chancellor Angela Merkel and French President Nicolas Sarkozy as "stale"?

Rostowski: I haven't dismissed them, but I didn't see a great deal that was new in these proposals. Having the heads of state and government of the euro zone meet twice a year is quite far from being a joint economic government. My impression is that Germany and France do not mean the same thing when they talk about economic governance.

SPIEGEL ONLINE: How optimistic are you that closer economic policy coordination will occur?

Rostowski: Everybody agrees that economic policy coordination is a good idea. The problem is that people usually have demands about others' behavior rather than about their own. I have never met a finance minister from any country who has come to me to ask: What should I do in my macroeconomic policy to suit you?

SPIEGEL ONLINE: Do you understand the German resistance to joint euro bonds?

Rostowski: I will say something that will be unpopular among German readers and politicians: When we are talking about a much higher degree of integration, we are essentially talking about a much higher degree of solidarity. That includes the idea of standing behind the liabilities of partners. Europe is faced with the choice of greater solidarity or dissolution. The euro has already been created, and its collapse would be catastrophic also for Germany. There is, therefore, no choice other than to go forward. Whether that integration comes through "euro bonds" or something else, is secondary. But, of course, just as there can be no Europe without solidarity, there can be no solidarity without responsibility. The beneficiaries of solidarity must show the requisite responsibility. And the higher degree of integration that we need must ensure both solidarity and responsibility.

SPIEGEL ONLINE: Should economic governance be organized on an intergovernmental level, meaning between the governments of the member states, or through the EU institutions?

Rostowski: It is hard to imagine how we could have something that was a stable and continuous mechanism that depended exclusively on intergovernmental cooperation. We do need the European Commission as a neutral referee. One can imagine emergency response happening on the basis of intergovernmental cooperation, but not much more than that. On the other hand, a solution to this great threat must be found. If the institutions that have been created to make the "community method" function -- i.e. the European Commission, the European Council (the powerful body of European leaders) and the European Parliament -- don't succeed in being part of the solution, then that will be taken as evidence that we can't get things done quickly enough through the community method.
SPIEGEL ONLINE: When will Poland join the euro?

Rostowski: When it is safe to do so. At the moment it is not safe. At the moment the euro is not constructed in a way that is safe for Europe as a whole -- neither for the surplus nor for the deficit countries.

IIn another one or two generations, Greece will have complied with EU
standards and be a contributing partner. No one said that it will work
immediately - nothing does in Europe, as we know Old Goat, right?
It usually takes a few generations, but I have faith that the EU will succeed.

Sept. 20 (Bloomberg) -- Europeans can’t say they weren’t warned. For a decade before the euro was launched, critics -- and many economists -- argued that one currency wouldn’t fit all, or even most, of the nations of the European Union.

The unfolding euro-area crisis is proof that the critics were right. Now it’s up to the strongest member countries to put an end to this failed experiment.

Nobody denies that the introduction of the euro had some economic benefits. The cost of currency conversion at national borders disappeared, and exchange-rate risks no longer had to be weighed when making transactions within the countries of the zone.

But it was never clear that Europe formed what economists call an “optimal currency area.” The countries had different business cycles and levels of wage flexibility, which suggested that the right interest rates for one part of the zone might be wrong for another. This problem might have been overcome if the euro area had a powerful central government capable of cushioning the blow for nations that experienced shocks as a result of inappropriate monetary policy. But, of course, it didn’t.

Proponents of the euro adopted the optimistic theory that its introduction would eventually make the region an optimal currency area. The euro would facilitate tighter economic integration, thus causing the business cycles of European economies to converge. It would also give rise to stronger European political institutions.

Two Problems

For a while, it seemed to be working. A September 2010 report from Barclays Capital found that the euro did indeed promote convergence. The EU did gradually gain power at the expense of its member states, though there was always plenty of popular resistance.

But these effects were outweighed by two others. The euro allowed profligate countries, notably Greece, to borrow money at low interest rates made possible by German thrift. And when trouble came, weak economies were unable to resort to the traditional expedient of devaluing their currencies to adjust. Thus, both boom and bust were accentuated.

The economies of France and Germany are so large that a policy designed for the euro zone as a whole would inevitably be a better fit for their needs than for those of the countries on the zone’s periphery. But the European Central Bank has given Germany’s economy even more weight than its size alone would suggest. The Barclays Capital report found that European monetary policy since 1999 “has tended to correspond more closely with German economic conditions than for the euro area as a whole.” Interest rates were thus much lower than they should have been in Greece, Spain and Ireland during the boom, and since then have been higher than they should have been.

Devaluation Dilemmas

If the ECB were now to loosen its monetary policy considerably, one would expect inflation to hit disproportionately in the countries with the fewest idle resources, such as Germany and France. Thus the troubled peripheral countries could benefit from a kind of internal devaluation while staying in the euro. Devaluation would lower real wages in the periphery to sustainable levels. If the weaker members stick with the euro and the ECB balks at inflation in the core, however, then the only way for the periphery to adjust is through nominal wage cuts.

As Allan H. Meltzer, a professor of political economy at Carnegie Mellon University, put it last week, Greece could “remain with the euro and deflate prices and wages 2% or 3% a year for six to 10 years.” The American political system wouldn’t be able to tolerate such a policy, and there is no reason to think the much-more-socialist Greek one can.

Poland, having not met the criteria to join the euro, was able to devalue its currency and has weathered the economic storms of the last few years fairly well. Switzerland is pegging its franc to the euro to prevent deflation. The Greeks -- as well as the Irish, Spaniards and Portuguese -- would be far better off if they, too, could have devalued their currencies. And so would the rest of the euro area, where taxpayers wouldn’t be facing pleas for bailouts.

A Reckless Gamble

Over the past 20 years, European elites have treated expressions of popular opposition to regional integration as spasms of irrationality. But the euro itself was a reckless gamble by those elites -- a bet motivated more by an enticing political vision of European unity than by any economic objectives.

Even as the euro wreaks fearsome damage on European economies, its defenders remain committed to this political project. Jose Manuel Barroso, the president of the European Commission, said this month that the euro “embodies the will of Europeans to share their future. This oath is not in question; we will come out stronger from this crisis.”

In this view, what Europe needs now is to deepen its political integration in the midst of crisis. Yet the crisis is itself making this scenario less likely: Nationalistic sentiment is rising, with Germans balking at bailouts and Greeks at the conditions they would involve.

The wiser course is to ditch the euro. The countries in the most trouble can’t leave it because their first whisper would trigger widespread bank runs. If Germany and like-minded nations want to avoid either inflation or bailouts, they themselves should leave en masse -- creating a new northern European currency covering a more economically cohesive area. The remaining euro countries could then adopt a realistic exchange rate in relation to this new currency.

Otherwise the shared European future that Barroso invoked is likely to be a grim one.

I don't think they would drop anyone from the EU, it's like the US and Puerto Rico - charity service so to speak, George. However, I might add: in the end
Greece will pay up, Puerto Rico will remain a charity cause.

IDENTITY FOR FRANCO-GERMAN
He drew a parallel between the current crisis and one that has arisen in the fall of 2008, the bankruptcy of investment bank Lehman Brothers in the United States.
"This is the entire banking system in the world who has paid the consequences", said the French president. "It is not possible to drop Greece for economic reasons and for moral reasons."
Angela Merkel, who received the Greek prime minister Tuesday in Berlin, has ensured that Germany would do "whatever is necessary "to help Greece. But, as Nicolas Sarkozy, has urged Athens to meet its commitments.
German Chancellor and French President, who spoke Thursday after the vote of the Bundestag, will meet again before the next European Council of 17 and 18 October.
"I will Germany in the coming days to continue with Chancellor Merkel's work coordination and collaboration between Germany and France, which has ensured the protection of Europe, "said Nicolas Sarkozy.

Perrhaps so. However, the current stalling on the part of European Bankers and the potential EU donor nations together with the studied inaction of the Greek government suggests to be they are all waiting for the next shoe to drop. In addition the developing crisis appears to be gathering momentum. The financial collapse of Greece could happen very quickly and with greater immediate impact than the EU institutions can resist. I have the strong impression that even the French have concluded that the cost to them of the bailout would be even greater than the expected losses to major French banks holdingh Greek Debt. If so a Greek default is inevitable.

"Europe is, without a doubt, in danger. Not because the citizens of Europe don't like the EU, but because they don't understand it. Because they can't even recognize it. Because no one explains what it's good for, what form it should take in the future and how to get there, step by step. The powers-that-be only say that the European Union must exist -- there is no alternative. They also warn that talking about the dangers only causes them to grow -- and so it's better to keep quiet."