Despite the euphoria in global equity markets, The FT’s Wolfgang Munchau – once one of the keenest euro enthusiasts – warns regime change is coming in Europe. The actions of the creditors has “destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union,” Munchau exclaims, fearing they have “demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.” He concludes rather ominously, “we will soon be asking ourselves whether this new eurozone, in which the strong push around the weak, can be sustainable.”
As The FT reports, the best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change…
In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.
But it was not just the brutality that stood out, nor even the total capitulation of Greece.The material shift is that Germany has formally proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a “timeout” as he called it. I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: regime change in the eurozone.
The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident — and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems.
The implications for the rest of the eurozone are at least as troubling…
We will soon be asking ourselves whether this new eurozone, in which the strong push around the weak, can be sustainable. Previously, the strongest argument against any forecasts of break-up has been the strong political commitment of all its members. If you ask Italians why they are in the eurozone, few have ever pointed to the economic benefits. They wanted to be part of the most ambitious project of European integration undertaken so far.
But if you take away the political aspiration, you may end up with a different judgment.From a pure economic point of view, we know that the euro has worked well for Germany. It worked moderately well for The Netherlands and Austria, although it produced quite a degree of financial instability in both.
But for Italy, it has been an unmitigated economic disaster.
The euro has not worked out for Finland either. While the country is considered the world champion of structural reforms, its economy has slumped ever since Nokia lost the plot as the world’s erstwhile premier mobile phone maker. France has performed relatively well during the euro’s early years But it, too, is now running persistent current account deficits. It is not only Greece where the euro is not optimal.
In such a system, someone, somewhere, will want to leave sometime. And the strong political commitment to save it will no longer be there either.
The FT columnist Wolfgang Munchau deserves some credibility… (as detailed in ‘Guilty Men’)
For many years he was one of the keenest enthusiasts for the single currency. As late as September 2006 he declared: I expect that Eurozone to be exceptionally stable in the long run… make no mistake, the Eurozone is here to stay
Four years later, Munchau had performed his acrobatics. ‘Whichever scenario you choose,” wrote the Financial Times columnist in March last year, “the Euro is going to be weak.”
And now, he is full euroskeptic…Such willingness to diverge from status quo thinking and candour has been all too rare among political and economic writers…
“A few things that many of us took for granted, and that some of us believed in, ended in a single weekend.”