FinancialGuy Writes!

There is a good review in today’s FT of the book ‘The Euro’ by the estimable Joseph Stiglitz. Martin Sandbu, the reviewer, notes Stiglitz’s contention that the Euro was ill conceived and doomed from the outset. However, Sandbu is very appreciative of Stiglitz’s critique of the various policy decisions which have been taken around the Euro, and the better alternatives which Stiglitz suggests could have been taken. Sandbu argues that these alternatives show that the Euro could have been viable if the right decisions had been adopted.

Arguably a system which can only be run by geniuses (and possibly only geniuses equipped with hindsight) is a system which, for practical purposes, cannot be run. I am reminded of a saying somewhere in the Buffett folklore that you should only invest in businesses which could be run by an idiot, because one day they will be.”

These words were emailed to me by a close friend, avid watcher of financial markets and long-time reader of this blog. Unlike most in the EU space, he had the ability to retire early and so spends much of his time reading and thinking about the world, and the world of finance in particular. It is very hard to imagine a more considered person on these matters. I value his opinion greatly.

He emailed me these thoughts after reading my most recent post, Yanis Varoufakis Was Correct, in which I suggested that the EU should hire a team of the finest independent economic minds to help the eurozone get out of it’s potentially permanent quagmire.

The point is that if the IMF, Varoufakis and Stiglitz all believe that the eurozone has permanent structural flaws, is there any way to save it in it’s current form? These problems can be difficult to see, especially as Varoufakis describes them, because they are very long-term issues, but they do show up in areas like Target 2 and the spread between the bond prices of eurozone governments (learn about bonds here).

For his part, Varoufakis suggests in his book that while it will require all three parts of a fiscal union, a banking union and a political union to make the eurozone function properly, it is impossible to achieve them all in the current form.

Where does that leave us?

It leaves us with tens of millions of Europeans grinding out an existence in a form of perpetual poverty, created by a potentially unending austerity, caused by unpayable national debts that have decimated economies and made mass unemployment the norm.

I’m no eurosceptic, but if this is the current end result of the European project, then we might need to consider starting the whole thing again.

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