In Monday's Wall Street Journal, Simon Nixon in his Europe File, "When a Crisis Looks Chronic, The Political Risks Multiply," raises the real question about what's going on there, one we've been writing since the crisis began.
It's a simple question, as simple as one that gets asked nearly every morning at breakfast: "How do you want your eggs, scrambled or over easy?"
Forgetting for the moment about the debate whether what's needed is more monetary stimulus or more financial discipline couched in the term austerity, here's what Nixon writes:
At the heart of this divide lies the central conundrum of the euro crisis: whether it survives on German or Italian terms. Is the euro to be a strong currency sustained by fiscal discipline, competitive economies and national responsibility? Or a weak currency forced to rely on deficit-spending, devaluation, inflation and ultimately the mutualization of debts to extricate itself from a crisis?
There in a paragraph is the heart of the matter, a question that can be asked in numerous ways. Do you want more of what you've got and had with the Italian-French connection to laxity, debt and devaluation or something new and better and more stable that takes time, discipline and competitiveness?
This clash is polarizing around two major issues: whether to effectively junk the eurozone’s fiscal pact in the face of France and Italy’s refusal to obey the rules; and whether the ECB should buy sovereign bonds despite German opposition.
Put crudely, German euro-skepticism is being fueled by fears that Germany is being asked to shoulder the ever-rising debts of countries that refuse to reform broken economic models based on cronyism and the protection of vested interests. At the same time, French and Italian euro-skepticism is being fanned by fears that German-inspired policies threaten to crush their economies and way of life without regard for national sovereignty.
Nixon concluded with:
Prolonged stagnation risks widening this rift to the point where the market may question whether the eurozone’s survival is possible on either German or Italian terms. That’s when the euro crisis will truly be back.
Those who keep calling for monetary stimulus, though they will deny it, care very little about the strength and sovereignty of the euro for now as long they can quickly wash over the badly needed structural reforms and make the sun, however temporarily, shine again.
The European version of socialism is no longer badly bent. It's broken. And this is a contagion, if these folks get their way, that will be far more difficult to contain than any Ebola virus.
That's our view. We hope you know yours.
