Divergence over convergence

The Euro, by including countries unfit for a strong currency, only made sense as a political step toward a more unified Europe; but in the following years, the atavistic masses of this, that and the other ancient nations indicated a definite lack of interest in becoming "Europeans". So the Euro was left hanging as a monetary union without any way to control fiscal policies. This was not likely to come to a good end.

We'll see if real fiscal intervention survives the crisis.

@bampbs I agree with you, however I think you are underestimating the foolish determination of the eurocrats to do things for political reasons even if everything falls apart around them. Unfortunately there is a lot of popular support for the blind and I am certain they need a lot more cold showers. The funniest thing is how the individual human beings both want to be "Europeans" and not leave their national pride at the same time. This, of course, has its impact over the politicians and ends up in endless fights over the wrong problems. EU needs to take steps to interact as a single entity with the rest of the world and find ways to preserve the internal differentiation (it may be a curse, but is also a blessing) not making a scene out of it before the whole of the human race every time something goes wrong with this or that member of the union.

"Asked whether France would reform the wage-indexation of its minimum wage, Mr Sarkozy replied curtly: no."
well that sums it up nicely, " reform of the Euro is needed so you must do this , but it does not apply to us"

Meanwhile, Switzerland is doing great and is the only European country that would currently meet the EU membership requirements. The EU is a retarded fantasy that just needs be gradually phased out of existence.

And so did the mighty spake, and thusly were the mighty told direction in where their fantastic ideas could be put!

"The day ended with a fudge: Herman Van Rompuy, president of the European Council (representing the 27 leaders) is being asked to confer with the 27 member-states to find out what kind of economic co-ordination could be agreed, in close consultation with the commission."

In which no doubt the Commission will no doubt want more money and power, Rompuy will sulk if not made emperor, and the 27 leaders will be so busy that only some one from the Treasury will be available and have strict instruction that any talk of the former and they are to set the dogs on the 'damp rag'.

I can't see the Eurozone surviving in its current form without at least one sovereign default. I'll predict Ireland first....

Ireland has a well educated, english-speaking population with historically high mobility and with family and contacts all over the world. Faced with a dramatic increase in personal taxes to repay government debt incurred to bail out bank bondholders, there should be a mass out-migration of the people with the highest skills. These people also tend to be the most productive and hence pay the highest personal income taxes. Losing this tax base will cause further damage to Ireland's already struggling economy and its ability to service its sovereign debt.

Selfishly, I'm glad I'm watching from this angle, not as a shareholder of European bank or as a tax payer in the Eurozone.

What Mr Sarkozy probably wants most of all is the smaller core of 1, which resembles the older, smaller European Union where France wielded great influence.

I am not entirely clear whether you have a typo, and intended to say "the smaller core of 17". Or perhaps you really did (at least sub-consciously) mean to say that Mr. Sarkozy wants a core of 1, i.e. France -- which would certainly guarantee France would wield great influence....

To hell with the euros, save the Europeans!

The Germans are still opposed to the formation of a real transfer union or a credit union. They are only prepared to offer loan guarantees via the ESFS in which this fund borrows cheap but lends high.

This has the benefit (for Germany) that the “loan” is not paid out of actual money (i.e. German taxes) but is merely a promise secured against future German credit. It also means that the ESFS’s borrowings and loans will themselves only be offered at a hefty premium (@ 3% over the EFSF’s own borrowing cost). This “assistance” is therefore not only self funding - but highly profitable. The Irish must repay the EFSF at 5.7% (neither the IMF nor the separate UK loan to Ireland are being charged at anything like this usurious and crippling rate – they are passing on to the Irish the full benefit of their own lower borrowing rates ).

Thus we still have a proposed solution to a debt and deficit crisis that is founded on expensive borrowings – by definition the one thing that heavily indebted economies charged with severe fiscal retrenchment (prescribed under the same mad euro strategy) cannot realistically be expected to service - much less repay.

And all this with no resolution to separate the debts created by the meltdown of private banking with the debts which properly lie with the sovereign. Both Spain and Ireland have a better fiscal discipline record than either Germany or France. But weighed down by their bankrupt banks Spain and Ireland are now in hock to their guarantees of their ruined banking sector. But this also means that if they renege on those guarantees they will no longer need an ESFS bail out.

The problem would then move from being their sovereign difficulty to becoming Europe’s second banking crisis – Germany will then have to spend real money (i.e. German taxes) to bail out insolvent German banks – some of the worst afflicted in Europe.

It may be that peripheral eurozone countries are going to keep accepting lectures, fiscal rules, slash and burn austerity measures and high interest loans from Germany and suffer this all for the dubious privilege of rescuing Germany’s banks.

But I wouldn’t count on it....

The Euro is great, but like the rest of the capitalist economies, the reform must be to capitalism itself, which is the broken part.

Its not sustainable for big unproductive corporations to steal money from productive parts of the economy and waste it to make a few people rich.

Banks... They must all go away...

"Countries unfit for a strong currency". So, is Germany fit for it? Sorry, but it didn't have that strong currency. By now, Germany uses a weak currency compared with the Swiss Franc or the nordic Krones. Were Germany living with a strong currency, its export performance would be worst.

But this is only the starter of a deeper discussion: First, Germany has not that strong currency. Second, it is so because the laggards allow Germany that advantage. But then, when the Germans discover that it is very comfortable for them to be in that currency area, they shall realize that, -third- the dynamic core would have to endure some inflation if Europe doesn't want Spain and other peripheral countries to be sentenced to the slow and painful torture of enduring several years of deflation.

How about a bit of truth on that convergence:http://www.youtube.com/watch?v=TgS2I5o7A9c&feature=related

The three concentric circles paradigm corresponds to reality and does not necessarily indicate a weakening of the euro itself. For the moment, the UK's non-participation in the euro looms large; in the future, the question of Polish membership will be more important, given the dynamism of that economy and its potential effects on its eastern neighbours. For that reason, EU policy with regard to Belarus and Ukraine is probably more important than is currently perceived. This relates to the relationship between the euro-zone and those countries that will probably never join the euro (not to mention Russia) Instead the UK's anti-euro stance, hardly contested at the moment, is laying the basis for future economic/political divisions between the UK and the continent. The UK press, in attempting to deny the future viability of the euro (incorrect thesis), is basically trying to convince its population they can remain outside the euro but inside Europe forever. That is an illusion.
As a Mediterranean, I am not sure I understand the need for a "permanent" bailout fund. Greece is Greece. Ireland is Ireland. Both countries need to put their house in order in such a fashion as to avoid these failures in the future. No other country has required a bailout - and I am convinced Portugal can avoid it. If the core of the problem is that Greece and/or Ireland will not be ready by 2013 to return confidently to private debt markets (highly probable in the Greek case) then let's deal with that on a "special" basis: continued aid is linked to continued reform. In this case trends and the directions of financial statistics, GDP, deficits, debt-to-GDP, etc. are almost as important as the numbers themselves, since national economies are like lumbering cruise ships and are not motorboats.
Why annoy and dismay the German population - the euro-zone's largest - any further with talk of a need for "permanent" bailouts?
Another related question: my country, Italy, has been a net contributor to the EU budget since the late 80's. The new arrivals of 2004 are net beneficiaries (the need is clear, although not permanent). Why have Greece, Ireland and Spain been such large net beneficiaries in recent years? All three countries boasted of per capita net incomes that were surpassing, or had surpassed, Italy's. Fine. And given the current Financial Depression we are all attempting to shrug off, I can accept the need in 2011 and 2012 to continue sending these monies. But there should be some attempt to de-structuralise these national "deficits".