“whatever, it’s fake.”
When investors realised that lending to Greece was way riskier than lending to Germany, they freaked out. Borrowing costs for European governments diverged. The euro tottered.
Super Mario saved the day with his power ballad “whatever it takes”. However, this third solution relied on easy money, meaning it was temporary.
“whatever it takes” would rapidly become “whatever, it’s fake.”
Facing record euro-area consumer inflation, at 8.1%, the ECB will raise interest rates by 25 basis points next month. Lord help us.
What, then, should the euro do?
The euro is a downside risk. It is a potentially unsafe, unsound, and unnatural experiment.
Rather than long-term prosperity, the euro might have enabled little more than unsustainable debt burps in the Palazzo delle Finanze. That suggests shrinking, and a smaller fiscal club. Or just ending it altogether.
If it looks like the single currency will implode, the ECB Berlin may step in to save the single currency. Welcome to a massive United States of Europe.
Alternatively, if it looks like the euro may implode, Brussels Berlin may kick some other capitals out. Welcome to either a smol United States of Europe, or none.
One currency to rule them all? Or one currency to fool them all?
Edward Price FT Alphaville 30 June 2022
https://www.ft.com/content/6e1b4292-6619-46bb-85c3-38b5f659e105
Edward Price is a former British economic official and current teacher of political economy at New York University’s Center for Global Affairs.
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