The Eurozone Collapse Cometh…

By Shaun Kenney | Monday, November 28th, 2011 | Economics

Wolfgang Münchau with the Financial Times muses on the impending crisis, and the three things the EU needs to accomplish –right now– in order to save the Euro:

First, the European Central Bank must agree a backstop of some kind, either an unlimited guarantee of a maximum bond spread, a backstop to the EFSF, in addition to dramatic measures to increase short-term liquidity for the banking sector. That would take care of the immediate bankruptcy threat.

The second measure is a firm timetable for a eurozone bond. The European Commission calls it a “stability bond”, surely a candidate for euphemism of the year. There are several proposals on the table. It does not matter what you call it. What matters is that it will be a joint-and-several liability of credible size. The insanity of cross-border national guarantees must come to an end. They are not a solution to the crisis. Those guarantees are now the main crisis propagator.

The third decision is a fiscal union. This would involve a partial loss of national sovereignty, and the creation of a credible institutional framework to deal with fiscal policy, and hopefully wider economic policy issues as well. The eurozone needs a treasury, properly staffed, not ad hoc co-ordination by the European Council over coffee and desert.

Anyone think that item #3 is even probable, much less possible?  Points #1 and #2 are well taken… but who will invest in a reserve currency with no demonstrable shelf life or security?

Germany will do all it can to save its common market, but the PIIGS — in lieu of being slaughtered and allowing northern Europe to enjoy the bacon, or at the very least being jettisoned from the EU ark — have instead porked up to the point where they threaten to sink the entire boat.

Get ready for the collapse of the Euro… and potentially, another round of “qualitative easing” in Washington and a further downgrade from European bond appraisers such as S&P.

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