Olli Rehn, the European Union’s Commissioner for Financial and Monetary Affairs, has a level head and has occupied the hottest seat in Europe during the long financial crisis; Via Meadia therefore takes him seriously. Reuters reports him saying earlier today that:
“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union.”
It is crunch time in Europe. By Christmas and perhaps much sooner we may know the fate of the single currency.The lies and the half truths on which the euro has been based are quickly dissolving. The much praised European Financial Stability Fund has turned into a bust as investors turn up their noses at its debt offerings. Heinz the Ant is unwilling to pay the bills for Zorba the Grasshopper; after so many tricks and so many lies, nobody believes that Zorba will ever reform.The euro is failing for technical as well as moral reasons; for years observers pointed out that ECB interest rate policies set to cope with conditions in Germany and France were causing credit bubbles in countries like Ireland and Spain. Those bubbles, and the aftermath when they burst, have as much to do with the euro’s dire straits as the endemic chicanery in Greece.Ultimately, the euro is in trouble because the peoples of Europe are not a single nation. West Germans grumbled, but they paid the bills to integrate the former East Germany when unification came because when all was said and done it was a family affair. They grumble and resist paying the bills for Greece, Italy, Portugal and Spain because those people are just neighbors.The euro is not dead yet. Indeed, if the pressures of the financial crisis are felt strongly enough, this could still work out the way the euro’s architects imagined it would. Many of those who backed the euro understood very well that a monetary union without a political union would sooner or later fall into a crisis. They assumed and expected that when that crisis came, the various countries in Europe would choose political union to save the currency.We are going to see very soon whether this trillion dollar bet works out. The signs now are not good, but this is only the eleventh hour. Not until the twelfth stroke of midnight will we know whether the pressures of the crisis can force the Europeans into a political union that most of them still want to resist.At Via Meadia we are coming to believe that even a full fiscal union of the eurozone countries would ultimately fail. The differences between South Carolina and Massachusetts led to a civil war in the American union; the differences among France, Germany, Italy, Spain, Finland, the Netherlands, Ireland and Greece are much deeper and more fundamental than the differences between northern and southern states in the early US. Fiscal union among the eurozone countries would be as unhappy as their monetary union has been; in the end, the Italians simply cannot and will not live the way the Germans want them to.We keep thinking of Abraham Lincoln’s riddle: how many legs does a sheep have if you count the tail as a leg?The answer is four, because calling a tail a leg doesn’t make it one.At the end of the day, facts speak. All human institutions must be built on what is real. Clever compromise, technical skill and sophisticated institution building are all very well, but the foundations must be solid or the building will fall.Jesus of Nazareth warned about what happened to people failed to ground their construction on solid rock, pointing to the example of a foolish man who built his house on the sand:
And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell: and great was the fall of it.Mt. 7:27
If the euro is built upon sand, the time of its fall is at hand — and great will be its fall.