So where the eurozone needs to go in the long run, we argue, is towards a genuine banking union; a eurozone-wide safe bond to break the sovereign-bank doom loop; a central bank that is more flexible and willing to act as a true lender of last resort against such bonds and other assets as necessary; and a fiscal union at least sufficient to support the above. But the short-run problems facing countries in the periphery of Europe are now so great that politicians may never get a chance to solve these long-run problems because the eurozone may well have collapsed in the meantime. The history of the gold standard tells us that an asymmetric adjustment process involving internal devaluation in debtor countries, with no corresponding inflation in the core, is unlikely to be economically or politically sustainable.The EU's motto is 'united in diversity' - so it looks like we'll be following diverse economic paths for some time to come...
Thursday, August 8, 2013
The Short Run is Too Short
Kevin O'Rourke on Europe's latest (self-)torture instrument: