Scally and Münchau on the euro zone crisis
This post was written by John McHale
Wolfgang Münchau and Derek Scally each have thoughtful (and complementary) pieces on what it will take to solve the euro zone crisis. (Apologies for linking to these so late in the day.)
Not mincing his words, Wolfgang Münchau makes it clear what won’t work:
The consensus view in Brussels and Berlin is that the crisis can be solved by technocratic governments imposing structural reform and austerity. That proposition is, in my view, insane. In any case, it will be tested shortly. Mario Monti, Italy’s new prime minister, is about to introduce a programme of reform and austerity. I wish him luck, but I doubt the bond markets will change their view on the sustainability of Italy’s debt in the absence of outside intervention. We have gone way beyond the point at which this crisis is solvable by standard instruments of economic policy. The survival of the euro will now depend on whether Ms Merkel or Mr Draghi, or both, will blink.
Derek Scally provides a useful window on German thinking. I would be especially interested in thoughts on his closing paragraphs.
For Dr Merkel, limited treaty change to allow EU budgetary supervision is the sugar-coating she needs to sell to her voters the bitter pill of greater ECB market intervention or even eurobonds.
Far from holding the euro zone hostage to its hyperinflation history, some German analysts see Merkel readying herself for a euro zone deal, aided by her two new pragmatic allies in Frankfurt.
“Pushing for a new euro zone regime of rules is exactly what was to be expected from Berlin,” said political analyst Jan Techau, director of the Carnegie Europe think tank in Brussels.
“What people don’t understand is that this package of rules is the political price Merkel needs for German concessions on the ECB.”