June 24, 2008: Ten Years Ago on Grasping Reality

2008-2012 was, apparently, not enough for the Great and Good of Germany to decide to repair the Eurozone and European Union's structural economic flaws: Wolfgang Münchau: Eurozone Downturn and Lack of Reform Presage Existential Crisis: "A slowdown mixed with a monetary union unwilling to repair itself would be a risk to the global economy...

...Germany has closed the doors on serious reform. Angela Merkel and Emmanuel Macron’s meeting in Berlin exposed deep differences about the German and French leaders’ visions of the future.... [And] there has been a sudden decline in the eurozone’s economic activity.... Add these two pieces of news together. We know for certain that Germany will not agree to a central eurozone budget to weather macroeconomic shocks. There will be no single safe asset. There will be no common deposit insurance. The big project of a European banking union will remain forever uncompleted. Then add something really dangerous—a recession—into the mix. I have no idea whether the next crisis will originate in sovereign bond markets, in the banking sector, or somewhere else. But the combination of a slowing and possibly retracting economy and a monetary union unwilling to repair itself constitutes one of the biggest risks to the global economy right now....

After years of following the eurozone debate, I have come to the conclusion that Germany will not agree to reforms unless it is confronted with a take-it-or-leave-it choice. A eurozone break-up would be a disaster for Germany. It would destroy the country’s export-led business model, and shrink its massive stock of external assets. But it is the prevailing assumption behind the refusal to accept institutional reforms that such a challenge would never happen. This assumption is correct. For now...


#shouldread
#macroeconomics
#exchangerates
#eurozone

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