"Either make up or break up"

Dear reader,

title of course a reference to David Cameron: David Cameron defends 'make up or break up' euro warning

Once again the rapidly developing or rather deteriorating events in the eurozone are to blame for yet another postponement of a planned blog entry on "human nature as a risk factor" (Which the author tries to complete nevertheless)

The author might add a chapter "Complacency of politicians" to the other causes for ultimate disaster leading up to the point of break up of the eurozone. But time to analyze what went wrong is running out and it's not time anymore to reflect on mistakes of the past but to concentrate on the future, without forgetting what we know so far from the past.

And we do actually know quite a lot, and some clever economists even predicted where things could get out of hand, but unfortunately nobody of significance listened.

So what would this author recommend after he wrote several stark warnings during Fall 2011 where the first complete disaster was looming until Mario Draghi and his fire fighting ECB stepped in ?

The ECB stepped in order to give politicians some breathing space to act and the ECB part worked but buying time is senseless when time is wasted by just kicking the can further down the road. So another almost 6 months of useless summits and much talk is wasted and now Spain is once again in the focus of attention making looming problems arising out of Greek mismanagement look so much smaller. OK... a fiscal compact is on its way to get ratified and Mrs Merkel seems to have get used to the idea that growth could do no harm to austerity, but so far avoided to sign up to the statement that some other EU members issued. (More growth initiatives here)

Well basically people have to see that there wouldn't be any problems of deteriorating confidence if the whole system wasn't obliged to restriction. The levels of debt are much smaller than in the USA or Japan. If the ECB could act as a lender of last resort all problems of confidence are vanished asap and the vicious downward cycle of self-fulfilling prophecies would have been broken.

Within the Anglo-American community there is the joke:
"There are two solution categories: One that works, the other which is acceptable to the Germans."
If you want some more 'beaf', here it is by excellent Jeremy Warner: Davos 2012: Can the Germans stop being German?

And as the author here point out earlier, Germany is in fact not 'an island of austerity' within a eurozone full of 'sinners'. It is the result of so far robust industrial production and other sectors regaining strength rapidly after the shock of 2008. And to be even more frank: It was lucky so far to have escaped declining demand by other EZ countries falling back into recession or worse landing in depression because BRIC countries and other emerging markets filled the gap ! Otherwise the 'German island' would also have been swamped by rapid deterioration of state finances partly due to reduced tax revenues and partly because of exploding social benefit costs. Without any doubt the rest of the EZ would face even bigger problems if that scenario played out.

In fact Germany would have experienced also a 'lost decade' and would be at the point where Ex-Chancellor Schröder and his reform agenda changed things. It changed German productivity but it didn't change its massive dependence on exports, which might arise the rather philosophical question about the 'hen and the egg'. There are indications that China, India and also Brazil are also facing at least a slowdown of their growth rates and this would force also Germany to rethink its strategy, when the EZ restarts to gain significance for their exports.

But it is not the time for philosophy or orthodoxy for that matter anyway now. Just as the ECB and its fire crew didn't ask about the ethics of their LTRO actions and justed hoped it will work somehow, just as Helmut Schmidt did break in fact the constitution of the FRG at time when he orchestrated the rescue of his fellow citizens of Hamburg during that catastrophic flooding in 1962, it's unfortunately time again to heed the warnings of Mr Cameron and not to condemn them as 'unwanted foreign interference'.

Maybe there is just enough time for at least one philosophical question: What about praised German austerity in NRW region , in Bremen or Berlin ? Kick them out or continue to feed them with 'Länderfinanzausgleich'. Collapsing industrial structures in all three regions can be blamed for decline, partially killed by political interference as it happened in Bremen

Just in case anyone needs some additional ideas of how solve EZ main problems:
Overcoming the Euro crisis (part XXIV) 

or many other 'newer' entries at  http://ezropinion.blogspot.com
or 'older' stuff (check archive 2011) at http://eurozoneremarks.blogspot.com


Timing is also important.

related articles:
Alessandro Profumo warns: "We are close to the abyss" (Wirtschaftsblatt AT) (Ger)