Tuesday 16 Aug 2022 | 05:55 | SYDNEY
Tuesday 16 Aug 2022 | 05:55 | SYDNEY

Eichengreen on Europe\ crisis


Mark Thirlwell

2 December 2010 15:19

I've been posting a fair bit on the eurozone crisis this year. My basic thesis (see the set of extended posts here, here and here) is about choosing whether to bet on the economics or to bet on the politics. Bet on the economics and in my view you would be pushed towards a bet that the project is doomed. Bet on the politics, however, and I think you bet that the Europeans will stick with their vision of a single currency. 

My line so far has been to bet on the economics in the short term (and hence you get the series of crises I posted about) but on the politics in the long term – that is, expect that the overall project will continue, albeit in modified form. 

Reading my posts, you can probably see that, although I've been sticking to this thesis, my faith has been wavering a bit. After all, as I found myself admitting a couple of times over recent weeks right after having advanced my 'bet economics short term/politics long term' thesis, if you were to ask me what could be the biggest economic 'surprise' in 2011, one obvious candidate would be a breakup of the eurozone.

One piece of work that has been a big influence on my thinking is this  paper by Barry Eichengreen, summarised nicely here. The paper argues that euro membership is effectively irreversible; countries are stuck with it after they've signed on the dotted line, for good or ill.

The past couple of weeks have brought two new pieces from the same source that add to this analysis in interesting ways: first, here is Barry Eichengreen recommending five books as a guide to the crisis. Some of this is quite similar to the 'political bet' I was trying to describe in my series of posts, with an added reading guide that might make a bit more sense of my argument. Also, Eichengreen no longer attaches a zero probability to a country deciding to leave the euro – just a very low one.

Second, here is a truly scathing indictment of the Irish bailout. To which I would only add, 'What he said'.

Photo by Flickr user UggBoy♥UggGirl.