All the bail-out systems under the sun cannot make the eurozone work

The Telegraph ^ | 6/24/2012 | Roger Bootle

[bruinbirdman]

Another week, another summit. This week's shindig of EU leaders in Brussels will be bound to focus on efforts to shore up the euro.

Once again, it is likely to disappoint. The main issue is well-known; bail-outs for indigent, non-tax-paying southerners at the expense of hard-working northerners.

The form book tells us that even if they come up with something, the proffered solution will be too little, too late.

But the real issue goes deeper. All the bailout mechanisms under the sun cannot make the euro-zone work. Such bailouts are still, in the end, loans. Even if the interest rates are set very low, interest is due to be paid and the debt eventually to be repaid.

What would make some difference is if the money provided were not some sort of loan but rather an outright gift. Such gifts can be made in advance (although they rarely are) or after the event, when they are called write-offs. Sometimes a recipient itself turns what was once a loan into a gift.

This is called a default. But northern countries understandably don't want their past loans turned into gifts, and they don't want to be forced to make new gifts until the crack of doom.

Yet even continued gifts under some sort of fiscal union would not bring prosperity, as we see clearly in Italy. Italian unification in 1861 married the Germanic north with the Latin south. The consequent misalignment continues to this day. If the euro holds together, this would leave the southern peripheral countries as a giant version of the Mezzogiorno.

The currently popular solution is euro bonds. This is fiscal union-lite. Northern countries would effectively share the burden of the south's debt. Without controls on the south's spending and borrowing, however, this

[bruinbirdman]

[CitizenUSA]

A wise leader would know when to cut their country’s losses and get out. Wouldn’t it be better to simply write off the loans as a gift and suffer the ramifications now than keep doubling down for much greater future chaos? Unfortunately, the Eurocrats won’t let go. It’s like riding a bad stock into the ground rather than selling it now at a loss.

BTW, I disagree with the author’s implication that the “hard-working” northern states are in much better shape. Most of them, to my knowledge, are up to their eyebrows in debt for their own social welfare programs. Like the US, they’ve promised a whole bunch of money they don’t have for generous entitlements. Germany, for example, has a debt to GDP ratio of something like 80%. Are any of them not borrowing the money they lend in these bailouts?

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

[NVDave]

“In good shape” is a relative term.

The northern countries in the EU are in better shape in two ways:

1. They are, in fact, decreasing benefits and increasing retirement ages to attempt to get their pension/social welfare schemes under control. The Germans just raised their retirement age to 67, and instituted new taxes on young workers to fund the retirement system better.

2. At the same time, the countries of the Med (and France) are moving the other way (eg, France is proposing decreasing their retirement age from 62 to 60) or they have absurdly low retirement ages:

http://www.forbes.com/sites/walterloeb/2012/06/17/retirement-in-germany-may-rise-to-age-69-while-greece-is-at-age-58/

Before this is all over and done with, I expect to see the northern EU countries (the Baltics, Scandahoovians, Finns and Germans) to to lay down some harsh law on the Med countries - or the northern countries will split off. The pissing and moaning of the Frog political leadership is really starting to make productive nations’ peoples PO’ed.

[MrEdd]

None of even the northern countries are in such a situation where collapse and defaulting on the debt of the welfare state is not a fantastically better proposition for the populace age 40 and younger.

Not one.

Not even Germany.

War within two years folks.

[chainsaw]

The Euro was doomed before it became a currency.

It is backed by nothing, and amounts to a stack of printed paper. In the future it will be used to cover the walls of public rest rooms as a tribute too the socialist/commie attempt to rule the world.