Monday, May 14, 2012

AS EUROPEAN AUSTERITY ENDS, so could the euro:
The euro currency is a malady that condemns at least a generation of Greeks, Italians, Spaniards, Portuguese and Irish to the economic infirmary.

In these nations, unemployment rates are now at their highest levels in recent decades, and there are few prospects for recovery in sight. The economists and politicians who created the system still proclaim it can survive. Their time would be better spent recognizing they made a bad mistake and preparing for an orderly dismantling of the euro before the damage spreads and further undermines European unity.

The problem isn’t just the region’s lack of competitiveness or its budget deficits or the high stock of existing government debt, which the International Monetary Fund now puts at 90 percent of the euro area’s gross domestic product (see Table 5 in this report). It is all of the above, compounded by five years of complete political denial.

For three years, capital has been fleeing Europe’s periphery for Germany. That country’s liquid banks, competitive labor markets and sound fiscal policies have made it the ideal location in Europe for investment. The periphery’s illiquid banks are sharply contracting credit to the productive sector, even as their governments are cutting back and political protests are mounting. Wages are too slow to adjust to dent these powerful forces: Germany looks ever more attractive for investors, further exacerbating the imbalances that brought us to this point.

Is there any hope for the euro dream?
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