Euro Rant of the Week

The economic gods, if such gods there be, seem to have a well developed sense of irony. The number one tool in the ironic gods toolbox, Homer noted, is the Cassandra trick. Send the people a prophet who will speak truly but never be believed. In the case of the Euro, there were more than a few such prophets who noted that the ECB's prescription seemed certain to fail. The Euro center, which I will just call Germany, was terrified of getting stuck with the bill, so forced Europe to adopt policies which seem certain to ensure that Germany and everybody else gets stuck with a really large bill.

In my mythological version of this story, when the weaker Catholic economies entered the Euro, Germany rushed to lend them big bucks, a bit careless of their ability to repay. The money went to inflate a housing market and buy lots of highways, roundabouts, Museums and other cool stuff. When the housing bust hit the world, tax receipts collapsed and a lot of bills became tough to pay.

At this point, there was a chance to act: wipe out the weak banks and stiff the big lenders. Naturally, this alternative was not attractive to Germany. So it was arranged that the mostly private liabilities of the underwater borrowers be nationalized, thus putting their whole countries on the hook for the mistakes of borrow and lender.

Well, many of those countries are now underwater and sinking fast. Germany keeps shoveling out more money, but its chances of getting most of it back are looking slimmer.

We shall see.


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