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This situation is now unsustainable for everyone, whether within the Eurozone or still out in the cold
Everything is being stress-tested in this crisis. Europe, too. The weak points in the way the European Union has been put together, politically and economically, over the 20 years since the world changed in 1989, are all showing up. As we saw with the investment banks last autumn, if one bulkhead bursts, others are likely to follow.
Start with the eurozone. To those that have it, the euro has been a source of stability and strength in this storm. Aspirants to membership of the eurozone, like Poland, pray that they were already members. Even in Britain, a discussion has revived about whether or not we would be better off with the euro. Yet at the same time, the stresses between different members of the eurozone are becoming acute. They go back to its original design.
Asked for the first lesson he draws from Japan's decade of stagnation, a leading Japanese analyst says: you need the closest possible co-ordination between your monetary and your fiscal authority. The eurozone has one monetary authority but 16 different national fiscal authorities. They are, in practice, only loosely bound by a growth and stability pact, while subject to intense domestic political pressures - for democratic politics in Europe are still almost entirely national. This has consequences. So, for example, because eurozone governments have behaved differently over the years, their bonds have been valued somewhat differently in the markets. In times of crisis, these tensions increase. Safety first, says the investor. So even if the Greek government offers me a better return for lending it money, I may prefer to lend to the German government. The more investors think that way, the greater the difference grows. In the end, something has to give.
The Guardian, Thursday 26 February 2009
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