The Coming Crack-Up of the EuroZone?

The Greek budget crisis is a symptom of imbalances that will lead to the breakup of the euro region, according to Societe Generale SA strategist Albert Edwards, reports Bloomberg.

The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” Edwards wrote. Even if governments “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable breakup of the euro zone.”

And my favorite mainstream economist, Martin Feldstein, nails it. Bloomberg, again:

“They have a single monetary policy and yet every country can set its own fiscal and tax policy,” Feldstein, 70, said. “There’s too much incentive for countries to run up big deficits as there’s no feedback until a crisis,” he said.

The EU is an economic structure that was designed with fault lines built into it. The Greek fault line is now active. The other PIIGS are not far behind. For Germany to throw their money at this problem, will only suck it into the danger zone. The only real solution is the breakup of the zone and force every country to fend for itself.