By this point, European summits have lost nearly all their credibility. Nearly two years of last-minute rescue plans that quickly flop have eroded the public’s confidence in Europe’s leaders and their ability to make tough decisions. But last month’s rescue package for Spanish and Italian bonds had many, Via Meadia included, convinced that this time could be different. Offering the promise for a more comprehensive agreement in the future, this agreement took Europe one step closer to the political union that many believe is necessary to save the euro.This has been the common view—but what if it’s wrong? What if Europe has already failed? That seems to be the position of FT columnist Wolfgang Munchau, who has been following the euro mess closely for some time. His regular column is a must-read for anyone wishing to understand the complexities of the crisis. In his latest dispatch he seems to have concluded that the time for fixing the euro may have already passed. Contrary to the optimism of late, he believes that the gap between the maximum Germany will accept and the minimum needed to resolve the crisis cannot be bridged.Europe, he argues, has placed all its chips on a future political union—one that would would be more difficult to achieve than any agreement discussed so far. If Europe has failed to agree on the details of bank rescue plans, why would they be more likely to agree on a much more controversial political merger?
The banking union that is required is the one Germany will not accept: central regulation and supervision, a common restructuring fund and common deposit insurance. It would take years to create. If done properly, it would require a change of national constitutions and European treaties, if only to redefine the role of the ECB. It is sheer madness to make crisis resolution contingent on the success of what would be the biggest European integration exercise in history.
If Munchau is correct, Europe’s plans are doomed to failure, and now is the time for countries to quietly begin contemplating a euro exit, albeit in a way that doesn’t instill global panic. Even this, unfortunately, is easier said than done.