Sunday, 4 December 2011

You can't just carry on as if nothing happened

There's no living with a killing, said Shane. There's no way to put Humpty Dumpty back together after he's turned into an omelette, as the King's horses and the King's men all found out. And there is absolutely no way that Europe can return to those halcyon ways when investors behaved as though neither default or departure from the euro was possible. Not unless the structure is changed to make it impossible.

Mario Monti is promising the sort of austerity that you would expect from a [roper eurocrat. Merkozy are set to get us closer to more rules and treaty changes, which they hope will help restore confidence and Draghi seems, to me anyway, closer to 'doing his bit' to make sure the ECB beefs up its crisis-response.

But I just don't think the euro can be batched up with fine-tuning of the current structure. We are going to go on seeing slow growth and go on seeing poor budget numbers, not to mention cash-strained households and banks. Confidence-building in peripheral government debt may improve a bit, but will ebb and wane. And at some point, it'll wane enough to put us right back in the mire.

What is needed is a plan that gets us to a very clear destination: A Eurobond, for a core group of countries which can and want to live with sufficiently co-ordinated fiscal policies and rules to make a Eurobond sustainable. Agree that is where we are going, agree the rules, create a precursor to a Euro bond, and get the ECB to bankroll the transition. Who is 'in'? Dunno, don't care yet. But saving the system, and then debating who is 'in' is a million times less awful than just letting it collapse because you aren't willing to recognise the need to move on from a system which may always have been flawed, but certainly is now.

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