Tuesday, May 11, 2010

European predicts the collapse of the European Union

So, it looks like Greece will pull out of the Euro:

1. There is no way Greece will ever repay the $146 billion; either (a) the austerity measures if accepted and complied with will plunge the country into deep recession, or (b) the general strikes that the austerity measures inspire will cause depression.

2. In either case, the Greek government will fall for agreeing to the austerity conditions, and the government that gets elected will repudiate both the austerity measures and the euro. Because the European Central Bank is not the issuer of euro notes and because that function has been left to individual countries, all Greece needs to do to "unpick" from the euro is to declare that each Greek-issued euro note (one with a serial number starting with "Y") is now a drachma note and will be exchanged 1-for-1 by the Bank of Greece.

3. Then Greece will go back to devaluing and inflating and devaluing and inflating just as it used to do.
This is a blow to the EU founder's dreams, coming not even a decade after the Euro's introduction. With all the Really Smart Intellectuals™ behind the EU, you'd think that someone might have predicted trouble.

Well, it turns out that someone did predict the trouble that Greece got itself (and the rest of the Eurozone) into. He was even a European.
Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands.
Adam Smith, The Wealth of Nations, 1776
Smart and well educated, those EU founders.


Lissa said...

I'm ashamed to admit that I didn't get through The Wealth of Nations. Maybe it's time I tried the PJ O'Rourke version again?

SiGraybeard said...

Borepatch, this reminds me. Over on my blog you suggested the EU will melt down next year, and I think sooner, like next fall.

Does this change your ideas of timing?

Borepatch said...

Graybeard, Spain is the one to watch. They have maybe five times the debt that Greece does. If Spain leaves, Portugal will leave too. Then maybe Italy.

While all that will take a while, I agree that we'll see the first of these by the end of summer.

But hey, it's easy to say this; I don't have any money riding on it.

TOTWTYTR said...

I think Germany is the key to the death of the EU and the Euro. They have one of the stronger economies in Europe and don't seem all that interested in bailing out the weaker ones. They'll go back to the Deutsche Mark, which will be the end of the Euro and likely the EU.

I'd expect the Wehrmarcht to roll into France in about 2015. ;)