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I bet a friend of mine 100 kronor that the euro would not exist in the way it does now, on January 1 2012. I'm more and more thinking I might have been wrong. The Euro does not work, but the costs of a break-up, not only political but economical as well, are so immense that it will not happen. The periphery will probably prefer grinding deflation/depression. and Germany might well prefer just paying everybody else's bar bill.

See this enlightening report from UBS.

The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.

Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over EUR1,000 per person, in a single hit.



Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:08:13 AM EST
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Yeah, and we will probably also give up democracy to save the Euro. At the end of last week's summit they appeared to be willing to throw the continued existence of an EU27 into the Euro's volcano.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:14:04 AM EST
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That's a funny thing, as in not funny at all actually. In the latest issue of Real-world economic review, Richard Koo comments that it has proved extremely hard for peace-time democracies to maintain stimulus programs over time. As soon as the slightest green shoots are noticed, stimulus is stopped and the recession returns.

However, he also notices that there is nothing as corrosive to democracy as sustained depressions. Well then say I, this resolves the problem! With the disappearance of democracy, the political problem of maintaining a stimulus disappears, as we see the advent of massive military Keynesianism. Yay. :p

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Dec 14th, 2011 at 10:23:32 AM EST
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And yes, the only thing we seem to learn from history is that we learn nothing from history.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:24:21 AM EST
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With the disappearance of democracy, the political problem of maintaining a stimulus disappears, as we see the advent of massive military Keynesianism. Yay.

You joke, but this is no joke: Political Aspects of Full Employment by Michal Kalecki in 1943

The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment.  We shall examine each of these three categories of objections to the government expansion policy in detail.

...

The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism.  The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed.  In a democracy, one does not know what the next government will be like.  Under fascism there is no next government.

The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments.  Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp.  Political pressure replaces the economic pressure of unemployment.

And this, my friends, is why Fascism is the primary mode of failure of Liberalism.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:29:54 AM EST
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