Don't Believe the Hype: The Eurozone Is Still a Train Wreck

Ashoka Mody, author of EuroTragedy, the definitive study of Eurozone as an economic project (haven't read it--you should!), has an excellent article on the British site Spiked pointing out just how bad things still are in the Eurozone. This gives the lie to the fawning adulation of European leaders as Mario Draghi ends his 8 year term as ECB President. Draghi did not solve the European crisis; he merely enabled the crisis to limp along to its next moment of truth.

"European leaders showered glowing accolades on Draghi as he departed from his eight-year term as ECB president. The leaders paid him tribute for sticking to the mythology of the euro; namely, that it spread economic prosperity and brought member nations together in a closer political embrace. But with perhaps the exception of his celebrated ‘whatever-it-takes’ statement in July 2012, in which he pledged to save the euro – a statement that appeared to work magic only because of German chancellor Angela Merkel’s unwavering support – the rest of Draghi’s term was a continuation of the eurozone’s intrinsic economic slide, amid increasingly aggravated political tensions....

At Maastricht in 1991, as Italy’s chief representative during the negotiations for the single currency’s design and membership, Draghi pushed for Italian entry into what came to be called the eurozone. The single currency, Draghi argued, would be Italy’s vincolo esterno, an external constraint that would force wayward Italian politicians on to a narrow path of policy discipline. Nearly three decades later, the brew of political and economic dysfunction in Italy continues to churn. The anemic Italian economy has been at near stand-still for the past seven quarters. The government’s already high debt ratio is creeping up. Social stresses are bearing down on people as the unemployment rate remains stuck around 10 per cent, and most jobs on offer are on precarious, short-term contracts.

Draghi may have left on a high note, but the Italian financial crisis will be the test of his legacy. Will the ECB then have the political backing to trigger ‘unlimited’ bond purchases under OMTs? Or will the tortuous process of triggering that bazooka scare investors, adding to the panic and magnifying the financial havoc that will then run through global financial systems."

Fun, fun, fun. And Germany just narrowly avoided falling into recession. The mix looks pretty combustible and there's no solution in sight.

SPIKED-ONLINE.COM

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