Smart analysis from the FT‘s Wolfgang Münchau on the seemingly intractable problems besetting the European Union and its common currency these days:
I do not have the foggiest idea what the probability of a break-up of the euro was during the crisis. But I am certain that the probability is higher today. Two years ago forecasters were hoping for strong economic recovery. Now we know it did not happen, nor is it about to happen. Two years ago, the eurozone was unprepared for a financial crisis, but at least policy makers responded by creating mechanisms to deal with the acute threat.Today the eurozone has no mechanism to defend itself against a drawn-out depression. And, unlike two years ago, policy makers have no appetite to create such a mechanism.As so often in life, the true threat may not come from where you expect—the bond markets. The main protagonists today are not international investors, but insurrectional electorates more likely to vote for a new generation of leaders and more willing to support regional independence movements.
Europe hasn’t solved the problem of the euro. It has exchanged an acute financial crisis for a chronic economic depression and avoided a financial market meltdown by converting it into a slow-moving but inexorable march toward a political crisis.Unless the EU authorities can figure out a way for Italy, Spain, and France to flourish inside the euro, sooner or later the voters in those countries will elect politicians who refuse to chain their futures to a corpse.