And as if on cue I am back to questioning this type of assertion from Tyler Cowen
Do not think that Germany has merely to waive a magic wand, or incur a one-time cost, to set things right in the eurozone. Any “set things right” action on Germany’s part is, one way or another, a form of doubling down. If it fails it means a bigger eurozone implosion in the future than would happen now, including much higher costs for Germany. The choice is not “German action vs. doom now,” it is “German action and some chance of even bigger doom later on vs. doom now.” That’s a tough call. The Germans understand that one better than do most of the bloggers I’ve been reading on the topic.
We want to be explicit about this. What exactly is the way that it gets worse? Maybe Tyler has a scenario, but the worse case endgame for a Euro failure is collapse of the global capitalist system, the political collapse of the West and the end of the Enlightenment.
That’s fairly bad as things go and it could indeed happen. Perhaps, the risk of this happening increases in the future but I don’t see how off hand. If nothing else a richer and more culturally Western China serves as a bulwark against systemic collapse of the Western Project.
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Saturday ~ December 3rd, 2011 at 11:47 am
Eli
Is it not obvious that the resources Germany spends bailing out Italy and Greece cannot later be used to bail out its own banking system? Just think triage. I am not claiming that this is an exhaustive account, by the way.
Saturday ~ December 3rd, 2011 at 3:47 pm
David Pearson
Karl: Sounds like a dire outcome to a Euro break up. I wonder if you predicted how much havoc the Euro would cause back in 1999? Or did you argue that the dire warnings of Euro skeptics would not come to pass?
Stability-seeking regimes like the Euro manufacture fragility instead. And yet you argue for more stability-inducing measures to “fix” our current problems. Let the ECB buy Italian debt. And if it stops in the future to contain inflation? No! That would tear apart the fabric of capitalism!
There is no exit plan for your recommended measures besides their success. Presupposing success is a dangerous approach for a risk manager. That’s the problem. Technocrats are not risk managers.
Saturday ~ December 3rd, 2011 at 3:53 pm
from Italy
I still do not get why Germany should be paying for us… If the ECB is getting in, Germany isn’t pay anything, just the ECB printing money. Of course, a bit more inflation in Germany for a few years, some argue this will be a kind of hidden tax imposed to the Germans, I am not sure this is true, I am not even sure it will be so bad for their economy, anyway that doesn’s seem the end of Western civilization, isn’t it?
I do not see how the Germans would end up bailing out Italy even with eurobonds, well I am talking about blue/red bonds proposal by Weizsäcker and Delpla, which limits the joint cover of debts up to 60% of GDP. In the short term that could bring to a default of Greece, Portugal, Spain, Ireland and Italy on the red part of their debt (and as a whole it’s hard money, but far less then a default of the same countries on the whole of their debt…) but if the ECB gets in softening the whole process maybe we would be able to avoid a financial meltdown, but it’s quite sure that there will be no default of anyone on the blue part of the debt, because our economies are not that bad! It’s enough the ECB being entitled to be lender of last resort on that part of the debt in order to avoid self-spiraling panick. And that part of the debt will be very safe and low interest. Of course in this scenario Germans will pay for (partially) bailing out their own banks, that’s bad for them, but we cannot say Italians are guilty also for French and German banks getting too much exposed on risky debt, isn’t it? Anyway, non end of Western civilization either…
But if we continue on the present route, with the ECB in a mess and almost unable to do anything, and with the institutionalisation of austerity as proposed by Merkel, well that will trig recession first in the periphery (actually it’s already doing it) and then in the core and along with that it will trigger financial meltdown in Europe. This could be the end of… 2012.
Sunday ~ December 4th, 2011 at 8:52 am
Gray, Germany
“Of course, a bit more inflation in Germany for a few years, some argue this will be a kind of hidden tax imposed to the Germans, I am not sure this is true”
Not sure, about this very obvious issue? You don’t know anything about economics, right? Inflation does hit lower and medium income households the hardest, that’s a fact. And the ECB can’t impose inflation selectively on one or several nations, so it would be inflation for 340 million folks in the Eurozone just to make live easier for the about 140 millions in the GIPSI nations. Doesn’t make much sense to me, that “solution”.
You Italians should finally do your homework! Reform your country, balance the budget, start reducing the debt. We Germans can’t and won’t bail you out. Period.
Sunday ~ December 4th, 2011 at 2:50 am
Adrian Ratnapala
We want to be explicit about this. What exactly is the way that it gets worse? Maybe Tyler has a scenario, but the worse case endgame for a Euro failure is collapse of the global capitalist system, the political collapse of the West and the end of the Enlightenment.
I don’t undertstand the logic here. It seems to be the following syllogism:
(a) A Euro-breakup now is the exactly penultimate disaster short of the end of the Enlightenment, and
(b) The end of the enlightenment is not likely.
Therefore
(c) It is not likely that anything will be worse than a Euro-breakup.
I would question premise (a). If a euro breakup threatens a big, long global recession, then why can Tyler’s scenario be “a bigger, longer, global recession?”.
Sunday ~ December 4th, 2011 at 6:36 pm
Claims about Germany and Europe which I disagree with — Marginal Revolution
[...] put a few of these under the fold…Karl Smith writes: …the worse case endgame for a Euro failure is collapse of the global capitalist system, the [...]
Sunday ~ December 4th, 2011 at 9:37 pm
TallDave
but the worse case endgame for a Euro failure is collapse of the global capitalist system, the political collapse of the West and the end of the Enlightenment.
You left out the dead rising from their graves. aliens invading, and the Sun exploding, all of which are equally plausible outcomes.
I mean really now, some deep breaths. The West survived Islam (all downhill since the second siege of Vienna), the bubonic plague, the Little Ice Age, two world wars, Communism, The Great Depression and disco, all of which were much greater existential threats.