The single currency remains in a debt crisis. In deflationary times, this will require a novel solution: honestyThe one thing that can be said with certainty about these debts, Keynes said of the reparations imposed on Germany at Versailles, is that they will not be repaid. He was correct, of course, and the world would soon learn the catastrophic cost of demanding that a country should pay the unpayable. A parallel is apparent with the obligations hung around the neck of the Mediterranean economies by the eurozone’s creditors, most importantly Germany itself. The emergency election in Greece, triggered by the prime minister’s failure to get his choice of president endorsed, is only the first of several 2015 crunch points at which the unsustainable may cease to be sustained. In the autumn, it will be Portugal and then Spain’s turn to put to the electoral test the purchase of respectable financial standing with interminable austerity.Anyone who wanted the single currency to survive – which remarkably, perhaps, still includes not only most eurozone governments but also most of its people – should be keen to keep open every feasible course through such choppy waters. But instead of signalling flexibility, Berlin is posturing as tough, with Der Spiegel reporting that Chancellor Angela Merkel and her finance minister Wolfgang Schäuble are “no longer afraid” of forcing Greece out of the club. Even if, as is possible, Mrs Merkel is merely seeking to warn Greeks off the anti-austerity leftists of Syriza, this represents a considerable hardening of the position. Official words about the expectation that Greece will remain in the euro and repay its debt remove none of the sting: Berlin is semi-publicly flirting with an idea which not long ago was utterly unthinkable. Continue reading...
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