Here is a picture worth a thousand words.
Update: further to my post yesterday, here is another piece on the fate of the eurozone by someone who has had a PIGS eye view of the crisis.
Category: EMU
Nouriel Roubini’s post is a useful complement to the piece by Wolfgang Münchau that John linked to earlier. In truth, I don’t think anyone really knows what is going to happen to the eurozone, and Wolfgang is admirably frank about the fact that he is just describing one possible scenario. But an increasing number of people are now arguing that eurozone politicians aren’t going to be able to fudge the unfudgeable forever. If that is the case, the Irish people may have some momentous choices to make in the not-too-distant future.
Wolfgang Münchau concludes his two-part series on the end game for the eurozone crisis: see here.
Update — A couple of complementary articles from the Irish Times: John McManus argues perceptively that Europe is already well on the way to a transfer union (see here); Dan O’Brien does not pull his punches in an assessment of Greece’s structural problems (see here).
It’s being discussed in the comments already but it’s worth giving German Finance Minister Wolfgang Schauble’s letter to the ECB, IMF and Ecofin ministers its own thread. The key proposal:
This means that any agreement on 20 June has to include a clear mandate — given to Greece possibly together with the IMF — to initiate the process of involving holders of Greek bonds. this process has to lead to a quantified and substantial contribution of bondholders to the support effort, beyond a pure Vienna initiative approach. Such a result can best be reached through a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years, at the same time giving Greece the necessary time to fully implement the necessary reforms and regain market confidence.
Just to be parochial about this for a minute, this raises an interesting question. If this approach was implemented successfully and did not trigger a financial crisis (I know some disagree — this is a hypothetical question) what are the chances that a similar restructuring would not be part of any potential second EU-IMF deal for Ireland?
I’ve written a post at the IIEA blog commenting on Hans Werner Sinn’s recent columns on the operation of the Eurosystem. Sinn has made some seriously incorrect claims and followed them up with dangerous policy recommendations. These columns have been cited approvingly by Martin Wolf, Paul Krugman and Felix Salmon over the past week.
Felix, however, has now read this post by Olaf Storbeck of Handelsblatt and doesn’t seem sure who is correct on these issues: He’s looking for “a central-banking wonk out there who fancies adjudicating this dispute”.
Well, with 11 years experience working in central banks, I suspect I meet the job requirements. I wrote my post before seeing Storbeck’s but hopefully my arguments back his up to help counter Professor Sinn’s somewhat wilder claims.