Ambrose Pritchard Evans writes in the Telegraph: http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100013758/europes-blithering-idiots-and-their-flim-flam-treaty/
Merkozy cannot bring themselves to accept that Europe's debacle stems from the euro itself, from a 30pc currency misalignment between from North and South, and from an over-leveraged €23 trillion banking bubble that [Eurozone] regulators allowed to happen.
The Treaty proposals evade the core issue - the disaster was caused by current account imbalances (Spain's deficit, and Germany's surplus), and by [resulting] capital flows setting off private sector credit booms.
Germany has kept the focus exclusively on fiscal deficits even though everybody must understand by now that this crisis was not caused by fiscal deficits (except in the case of Greece). Spain and Ireland were in surplus, and Italy had a primary surplus.
- The Eurozone was never an optimal currency area, and is highly unlikely to become one
- Historically, the dense river network in northwestern Europe afforded the region much lower transportation costs
- This competitive advantage allowed the accumulation of capital and construction of roads, railways and industry
- The industrial environment fostered cultural habits of efficiency, innovation and hard work
- No amount of regulations, treaties, currency unions or monitoring can change this historical development
- The only trick Southern nations had up their sleeve (currency depreciation) ended with the adoption of the Euro.
- The result is the trade surplus in the North and huge debts in the South
The Output Gap is a Depression risk
- Without a debt-liquidation the cost of servicing the debt (private or public) has created an Output Gap reflected in the Unemployment and Excess Capacity figures
- An oil shock, global slowdown, or simply austerity can widen this Gap into a Depression.
- The best case scenario under the present course will only result in a prolonged Japan-style slump
- The worst case will be a deflationary Eurozone depression which can bring down the entire EU and periphery
- A common market was a great idea. Currency union is a proven disaster. Austerity without debt-liquidation (PSI) will only make things worse.
How can the Eurozone turn this around?
- The bad debts resulting from the banking bubble must be liquidated & stifling regulations in the Eurozone loosened. This is unappetizing but it is ABSOLUTELY the only way to restart growth.
- Reinstatement of national currencies will fix the currency misalignment issue depreciation. This will also allow indebted countries to inflate their debts away without a default.
- A Eurozone split (along North-South lines) can allow indebted countries to inflate and regain competitiveness (France would belong in Club Med, not in the North)