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Martin Wolf on the eurozone

An interesting column by Martin Wolf on the eurozone, based on a paper written by Paul de Grauwe. He starts by noting that Spain's real interest rate is double that of the UK, which is entirely due to its membership of a monetary union. The ECB supports the banking system, but acts like the IMF: it wants its money back. There are three possible outcomes to the crisis. The first is a fall-back to the gold standard, with its pro-cyclical policies, which will be as unacceptable to European today, as it was in the past. The second will be a break-up, a concentration of the eurozone around countries similar to Germany. And the third will be deeper integration. He predicts they will choose the latter, but it is a political choice.

Since the Euro is being run as if it were already on the gold standard, I predict the first option will be chosen since we're already there.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed May 4th, 2011 at 04:17:53 AM EST
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