Munchau doubles down regarding, as you may recall, his 10-days-to-save-the-euro sometime back in 2011. In a sense he's wrong but in more important ways he's absolutely right. Underestimating the ad-hoc will of the EU political elite to keep this monstrous failure of an experiment going is no cause to rejoice. Munchau has several lines of clarity coupled with disdain to what he sees as an immoral attitude to keep the struggle alive.
On the possibility of a banking union, he says, "An operational banking union that comprises supervision, resolution and deposit insurance would have been a minimally sufficient condition to make a divergent monetary system work against the odds. It would have solved the problems of the Cypriot banks for sure. But the eurozone does not have such a banking union. It will not have such a banking union in five years. Germany rejects it flat out on the grounds that it is too expensive for the German taxpayer. Ironically, Cyprus would also reject it as it would kill the country’s business model as an offshore centre for foreign deposits. Whatever banking union will ultimately emerge in the long run will be irrelevant to this crisis."
He then talks about the three blunders the Cypriot government committed:
1) Seeking help from Russia that was interpreted as a hostile move which eventually backfired due to the Russian reaction
2) Lack of communication with the euro group during those three critical days last week
3) Their proposal to create a sovereign wealth fund backed by pension funds and state assets - this was swiftly dismissed by Merkel.
Instead of harping on about the Cyprus fiasco, Munchau looks at the big picture for the long run. No matter how many times you hear this, it just cannot get old. The asymmetry of austerity-led adjustment has been having/will have a slow, cumulative and dooming effect on the euro because the perversion of this austerity drive has led the eurozone to run a primary surplus during a recession. The scope for any adjustment, therefore, is zero.
He also claims immorality in that every decision taken seems to run contrary to the interest of the people or the common good and over time, this manifests itself politically.
A couple of notes I read elsewhere mentioned the scope of the trilemma for Cyprus as it moves forward into a very painful phase. Informally, it would seem that Cyprus has left the euro because when you think of it, a euro in a Cypriot bank is no longer worth a euro in a German bank and the moment you introduce capital controls , the concept of a unified monetary system should slowly disintegrate.
The whole point, in fact, of a perfect monetary union involves the free flow of capital at its roots. If this is removed, my euro sitting in Cyprus is not the same as my euro in Germany. It's inferior and essentially, it's another currency. An EINO - a euro in name only.
For the most part, since capital mobility is assumed (except in certain cases/economies), it comes down to a choice of fixing an exchange rate or running an independent monetary policy. Hong Kong chooses its rate and gives up the latter while the US floats and sets its own rates. Once Cyprus imposes capital restrictions, logically the next step (since it's theoretically under the euro) would be to assume its own monetary regime. And then...
A few more interesting looks before I end:
Ed Conway's harsh post with this conclusion, "Which is why we’re all here today. To see what happens when a nation state is cruelly mistreated by those who claimed to have its best interests at heart."
Pawel Morski's tweets
Krugman on forgetting OCA's, because PCA's are the new in thing.
Tim Duy on more of the same.
On the possibility of a banking union, he says, "An operational banking union that comprises supervision, resolution and deposit insurance would have been a minimally sufficient condition to make a divergent monetary system work against the odds. It would have solved the problems of the Cypriot banks for sure. But the eurozone does not have such a banking union. It will not have such a banking union in five years. Germany rejects it flat out on the grounds that it is too expensive for the German taxpayer. Ironically, Cyprus would also reject it as it would kill the country’s business model as an offshore centre for foreign deposits. Whatever banking union will ultimately emerge in the long run will be irrelevant to this crisis."
He then talks about the three blunders the Cypriot government committed:
1) Seeking help from Russia that was interpreted as a hostile move which eventually backfired due to the Russian reaction
2) Lack of communication with the euro group during those three critical days last week
3) Their proposal to create a sovereign wealth fund backed by pension funds and state assets - this was swiftly dismissed by Merkel.
Instead of harping on about the Cyprus fiasco, Munchau looks at the big picture for the long run. No matter how many times you hear this, it just cannot get old. The asymmetry of austerity-led adjustment has been having/will have a slow, cumulative and dooming effect on the euro because the perversion of this austerity drive has led the eurozone to run a primary surplus during a recession. The scope for any adjustment, therefore, is zero.
He also claims immorality in that every decision taken seems to run contrary to the interest of the people or the common good and over time, this manifests itself politically.
A couple of notes I read elsewhere mentioned the scope of the trilemma for Cyprus as it moves forward into a very painful phase. Informally, it would seem that Cyprus has left the euro because when you think of it, a euro in a Cypriot bank is no longer worth a euro in a German bank and the moment you introduce capital controls , the concept of a unified monetary system should slowly disintegrate.
The whole point, in fact, of a perfect monetary union involves the free flow of capital at its roots. If this is removed, my euro sitting in Cyprus is not the same as my euro in Germany. It's inferior and essentially, it's another currency. An EINO - a euro in name only.
For the most part, since capital mobility is assumed (except in certain cases/economies), it comes down to a choice of fixing an exchange rate or running an independent monetary policy. Hong Kong chooses its rate and gives up the latter while the US floats and sets its own rates. Once Cyprus imposes capital restrictions, logically the next step (since it's theoretically under the euro) would be to assume its own monetary regime. And then...
A few more interesting looks before I end:
Ed Conway's harsh post with this conclusion, "Which is why we’re all here today. To see what happens when a nation state is cruelly mistreated by those who claimed to have its best interests at heart."
Pawel Morski's tweets
Krugman on forgetting OCA's, because PCA's are the new in thing.
Tim Duy on more of the same.
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