Wolfgang Munchau the Financial Times today writes of his fears for the Eurozone as France and Germany try to prevent a further crisis with new sanctions that cannot work because if they were in place before the original crisis, they would not have prevented it.
..What about the proposed crisis resolution mechanism? When Angela Merkel, the German chancellor, gave ground last week on automatic sanctions, she gained the concession from Nicolas Sarkozy, the French president, that he would support Germany on crisis resolution.So the €440bn European Financial Stability Facility, set up in May to support eurozone countries with funding difficulties, will not be renewed. In 2013, it will be replaced by a tough crisis resolution mechanism to address the logical inconsistency of a system that rules out exit, default, and bail-out. The Germans continue to support the no bail-out principle; and have accepted that you cannot force a state to exit against its will. This leaves default. Having been very pessimistic on the default-probability of eurozone states, global investors may now be too optimistic again. If Ms Merkel gets her way – and I think she will – this means the eurozone’s future crisis resolution mechanism will be based on default.
The eurozone thus ends up with tough rules, poor implementation, no effective framework to deal with private sector imbalances, and an officially instituted mechanism that encourages default. The crisis was obviously not big enough to bring about genuine policy change. If, or rather when, that next crisis comes, it will probably be too late. (link to full article)
There is only one way to permanently sort the Eurozone crisis as Smart Taxes readers will know. That is with a distribution of non-debt money to all member states on a per-capita-basis as outlined by Auerback and Mosler.
