Photo: Spacepleb, Flickr
A note from Deutsche Bank’s Peter Hooper almost reads like a eulogy for the eurozone.It leads in with this quote, from former Bundesbank Chief Economist Otmar Issing: “There is no example in history of a lasting monetary union that was not linked to one State.”
That kind of says it all right there.
As for how the Eurozone dies:
The history of past real or quasi monetary union of sovereign states suggests that the build-up of severe fiscal imbalances in parts of the union and the monetisation of these deficits have been the key reasons for failure. Mindful of the past experience, the fathers of EMU wanted to shield the central bank from any pressures to monetise fiscal deficits and hold countries responsible for their financial behaviour.
With political union, in our view, very unlikely, the best option for a stable future of EMU would be a return to the basic principles of the Maastricht Treaty. Without political leadership from the top, this outcome is likely to be driven by grass-root events (e.g. a rebellion of the backbenchers in the Greek or Berlin parliament against their leaders or a potential bank run in Greece). Given the recent momentum in the political debate, we would give such an outcome over the coming 6-12 months the highest probability. Alternatively, if the political elites remain in control and enforce the continuing execution of unviable adjustment programmes, we see a significant risk of an eventual break- up of EMU.
So that’s it: If leaders can take control and create political union, there’s a chance. Otherwise, breakup.
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