Photo: Wikimedia Commons
Paul Krugman is correct here about the inadequacy of the latest European bailout scheme, and what it will take for Europe to save itself:It’s still looking impossible to save this system without a drastic change in both the ECB’s actions and its philosophy. If that’s impossible, as so many people claim, the euro will be a failed experiment.
Reforming the ECB — turning it into an institution that funds European governments — may ultimately prove to be impossible not because of any technical reason (that is, after all, what central banks do) but because of the European obsession with ECB independence, and the German obsession with hard money/not monetizing debt.
And while you might be able to defend this stern view of the ECB’s role based on some kind of “principle” of whatnot, it’s crazy to think that the alternative is a loss of sovereignty for Europe!
Think about it: European leaders right now think it’s preferable to have the head of the EFSF travel cap-in-hand to China and Japan asking for investments. There’s even talk of Europe paying back China in yuan. It’s basically impossible to imagine China participating in a bailout fund as a pure “investor” and not as an entity that will want some influence in Europe’s future strategic decisions.
The preference for loss of sovereignty (however minor) over a more flexible ECB (which would be a perfectly satisfactory solution) boggles the mind.