As the crisis in the Eurozone keeps deepening I want to make a few notes:
- The core of Europe's problems are internal tensions. Compared to Germany the Southern European wages are much too high. This leads to trade imbalances and as a consequence the South is becoming more and more indebted to the North. For a long time the pattern was masked because the North bought companies and real estate in the South, attracted by a self-reinforcing bubble in real estate prices. But this no longer works and now we will have to break this pattern. The fact that this comes on top of the financial problems that were exposed by the crisis of 2008 only complicates the matter.
- the Eurocrats keep pushing for more centralization. They want a common European economy, taxation, etc. In their view Europe should become something like the US. I don't believe that is a good option and I doubt whether even 10% of Europe's population would support such a proposal. But even if everyone wanted it it would be a surreal discussion: we live no longer in 1776 and working out the details of a federation would take at least a decade. For now we should draw the obvious conclusion that we have gone a bridge too far and that some kind of retreat is inevitable.
- the Eurocrats have a history of never wasting a crisis and always bringing in more centralization as the solution for problems that arise. The euro was brought to us at least partly as a solution for the problems of the snake. Eurocrats are used to get their way and it will take a major shock for them to admit that this time has to be different. They are also well aware that the setback may mean that they won't see the federal Europe they long for in their lifetime.
- as I have written elsewhere I think the Eurocrats are betting on the wrong horse. One should give countries time to adapt to Europe. The Irish and Spanish real estate bubbles were vivid illustrations that these countries were not ready for the euro. Their adaptations to the EU real estate market should have happened while they still were outside the euro so that they had the tools to regulate the bubble. Also I think slowly integrating the former Soviet block and the Arab world should get more attention. We may never want Turkey and the Arabs inside our Brussels decision making apparatus but we should be open to economic and other kinds of integration.
- I don't believe in formal rules like the 3% limit on government deficits or the recent attempt of Spain to put that kind of provisions in its constitution. It is window dressing that treats future generations like little children. It evokes exactly the kind of evasion as we have seen with Greece.