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The Economist, The Merkel Memorandum och Plan B

Jag har läst The Economist i ungefär 50 år sedan jag fann den i tidskriftsrummet ovanpå Atén på Akademiska Föreningen i Lund, kaféet där jag tillbringade en stor del av min tid i Lund.
Nästan alltid har jag funnit att The Economist på ett elegant och klart sätt har formulerat mina egna grumliga tankar.

Några gånger har jag funnit att The Economist och jag varit oense. Det sår onekligen otrevliga tvivel om ens eget omdöme.

Ett sådant tillfälle var när The Economist i en ledare den 17 september 2011 skrev att "Few people, least of all this newspaper, want either vast intervention in financial markets or a big shift of national sovereignty to Europe. It is just that the alternatives are far worse".

- It will involve new treaties and approval by parliaments and voters. This is not what they were promised when the euro was set up. Completely true, and sadly irrelevant.


Tidningen återkom med senare med slutsatsen att "A limited version of federalism is a less miserable solution than the break-up of the euro" The Economist print 26 May 26 2012

- The Economist har fel, utropade jag i förtvivlan på min blog.

Nu tycker jag mig emellertid till min glädje se att The Economist backar.
I det senaste numret har de en ledare och ett fejkat hemligt PM - The Merkel Memorandum - i vilket slutsatsen förefaller vara att det inte finns någon framkomlig väg för att rädda euron.

Even as Mrs Merkel struggles to find a solution, her aides are surely also sensibly drawing up a plan to prepare for the worst. Our briefing imagines what such a “Merkel memorandum” might say.

There is a common fallacy, not least in Germany, that dropping the Greeks would be a fairly
costless way to teach a useful lesson. it would save German taxpayers from an open-ended commitment to Greece.

And yet proof of the euro’s reversibility will throw markets into a panic. Ireland, Portugal, Cyprus and Spain also all owe investors abroad a net sum of 80-100% of GDP (the gross debt is much larger). One reason why these foreigners have hung on is the belief that the euro cannot break up.

(There is no provision in any European Treaty for a country to leave the eurozone. That was deliberate. It was intended to make it clear that the eurozone was forever – like the Soviet Union and the Holy Roman Empire. Roger Bootle, Daily Telegraph 5 September 2011)

Greece’s defenestration would turn that calculation on its head, triggering soaring bond yields in southern Europe. Stampeding domestic savers would cause runs on banks.

A bolder Plan B would amputate well above the site of infection, cutting off Spain, Ireland, Portugal and Cyprus too.

This newspaper has argued that the euro zone’s members should use their combined strength to create a banking union and to mutualise a chunk of the outstanding debt.  But a prescription is useless if it is never applied—and our doubts that this one ever will be are increasing.

The euro could have been saved a long time ago, had the politicians agreed on who should pay what or on how much sovereignty to surrender. Rather than push forward, Mrs Merkel has waited, hoping that fiscal adjustment and structural reform will lead to economic growth in southern Europe and that the politicians could sort out their differences.

The evidence, though, is that time is not on her side.

Southern Europe’s economic rot is deepening and spreading north. Politics is turning rancid as the south succumbs to austerity fatigue and the north to rescue fatigue.

The Merkel memorandum

The position is dangerously unstable. If capital flight from the peripheral economies gathers pace, it could trigger runs on entire banking systems. That would put the ECB—and thus, indirectly, the Bundesbank and Germany—on the hook for deposits worth trillions of euros.

Plan B seeks to save the euro by surgery, excising states that cannot cope rather than clinging to the vain hope that they can regain their health within the euro zone.

The moment the markets reopened, the drachma would depreciate, probably by more than 50%.  That devaluation, if not squandered in a lurch towards hyperinflation, could deliver Greece from its current misery of perpetual recession by letting it regain lost competitiveness at a stroke, rather than by grinding down domestic costs over several years. (Interndevalvering)

The other four—first Ireland, then Portugal, and now Spain and Cyprus—are also teetering in the relegation zone. Expelling them too might be better for them, for the euro and for Germany, because it would make the remaining euro area more viable.

As well as being burdened by unsustainable levels of external debt, all five economies share the misery of trying to regain lost competitive ground through internal devaluation, in which domestic costs are ground down year after year. With the exception of Ireland  you could hardly select a group of countries less able to make a success of internal devaluation.

The biggest risk associated with this scenario is that the moves towards debt mutualisation and a banking union might not, after all, be enough to stabilise the remaining euro area, resulting in a total break-up of the euro zone and triggering a savage recession with hugely damaging economic consequences.

Markets invariably ask “who’s next?” and there is an obvious answer. The task of restoring Italian competitiveness would be far harder once the five departing economies had adopted new, much cheaper currencies.

The more that markets fretted about Italy, the more they would also fret about France, given its strong trading and financial links with Italy.

Mrs Merkel thought long and hard about how to respond. She ordered the memo to be shredded, resolving that if the euro area is to fragment, it will not be at her behest. But the staff member who was told to destroy the memo thought it might be useful to keep Plan B in reserve just in case. Plucking it from the shredder, he filed it away instead. No one need ever know that the German government had been willing to think the unthinkable. Unless, of course, the memo leaked…

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