The breakup of the euro area would save the 16-nation region from years of economic stagnation by boosting weaker members’ competitiveness as well as domestic demand in Germany to spark growth, Capital Economics said, reports Bloomberg.
“The threatened breakup of the euro zone, which many see as a potential disaster, would actually open the door to renewed economic growth, not just for weaker members of the zone, but for Europe as a whole,” Capital Economics analysts including Roger Bootle in London said in a report.
This analysis is spot on. It dovetails nicely with the thoughts I wrote in April on how the debt crisis should be solved.
At times, Bloomberg and Financial Times carry articles by economists stating that a breakup of the euro area would be the best thing to do. But the EU State and Finance Leaders have consistently announced that default by Greece will not be an option — the eurozone will not be breaking up.
ReplyDeleteWe are living in the age of global governance: when crisis arises, leaders announce policy, that is they govern by announcement. The word, will and way of the leader or leaders becomes the law of the land.
The socio, economic, and political landscape is completely different from it was pre European Sovereign Debt Crisis time of May 8, 2010. Crisis arose and governance changed. At the Eurozone May 2010 Summit, The EU Finance and State Leaders announced European Economic Governance and called for a Monetary Union with Seigniorage Authority to issue eurobonds and in so doing they effected a bloodless coup where they waived national sovereignty. Sovereign nations are a principle of a bygone era. One is no longer a citizen of a nation-state; rather one is a resident in a region of global governance. No nation in the European Union can just cut loose and default upon the urging of any economist, no matter how well perceived that economist might be. And the leaders of the other EU countries are not going to communicate to Greece that it should default as:
1) In May 2010, the eurocracy, that is the EU State leaders, were called to meeting by President Herman Van Rompuy, and all were well aware of Greece’s staggering level of debt relative to GDP, and announced bilateral loans to Greece, but in reality they are seigniorage grants, based on the committment to continue with a common union, and create what was called at that time “economic governance” to preserve the value of the euro.
2) In June, 2010, the EU state leaders and finance leaders met and announced a debt union to create Euro bonds via the EFSF monetary agency. This monetary authority will have seigniorage authority to create bonds and have lending authority to make loans to Greece and other nations experiencing sovereign distress, based upon the premise that a default by Greece would likely wipe out the banking system of Europe, as both Germany and France hold large amounts of Greece sovereign debt.
3) Mr. Van Rompuy called a press conference after the June meeting where he emphatically said default is not an option.