The Euro Doom Industry Is Booming

The euro is still here, just about, but there’s a lot of people putting their reputations on the line suggesting it won’t be here for much longer. But what’s this, a queue to join the single-currency? Here’s my column on the weird state of the euro.

From The Irish Times, Saturday, June 2nd, 2012


ON WEDNESDAY, the European Central Bank published an extensive and conclusive report, running the rule over eight European countries, scrutinising their economic progress and examining their budgetary compliance. The report came to a rather predictable conclusion: none of the eight countries in question should be in the euro zone.

After being bombarded for months with headlines and analysis and opinion pieces suggesting the end of the euro was nigh, it might have come as a perverse form of relief to hear that the ECB had reached a similar position, except for one important aspect of the report: the eight countries are not, in fact, members of the single currency. Bulgaria, the Czech Republic, Latvia, Lithuania, Hungary, Poland, Romania and Sweden, for it is they, are technically waiting to be admitted to the euro zone.

Considering the mounting hysteria around the currency, it probably comes as a bit of a shock to realise that countries are queuing to get into a financial club that appears to be falling apart at the seams. The publication was the ECB’s Convergence Report 2012, which determines how well aspiring euro zoners are doing in their efforts to join the money-burning fun.

For the eight countries in waiting, this year’s report must be somewhat akin to sidling up to the punctured starboard side of Titanic in a perfectly seaworthy vessel and being told they can’t board because they’re not wearing the right style of tuxedo. Indeed, given how badly many of the current members’ economies are doing, you’d think that any place with a bank vault and a piece of paper with “constitution” scrawled across the top would be more than eligible for membership.
As a BBC report pointed out, “all the countries under review in 2011 had a debt-to-GDP ratio below the 60 per cent eurozone limit, apart from Hungary. Inside the euro currently, Greece’s debt-to-GDP ratio last year was 165.3 per cent, whereas Italy, Ireland and Portugal were all above 100 per cent.”

It’s important to note that the ECB is obliged to assess the suitability of potential recruits to the euro zone every two years, so on this occasion it’s merely a case of very unfortunate timing. Though, if you were being extremely charitable, it might be possible to interpret this year’s report as an expression of optimism: “While these countries are not yet ready to join us in our wacky pan-European currency experiment, we are going to behave as if the experiment will still be around for them to join at some point in the future.”

All the same, it’s hard not to see this as reinforcing the impression that the ECB is not so much oblivious to which way the wind is blowing as studiously ignoring the storm-force gale that is rending its house apart.

As a vignette of these turbulent times, the sight of the Czech Republic, Poland, Sweden and co being turned away from the euro zone is just part of the mosaic of a grand unravelling, alongside images of Spain’s young indignados, or graphs showing vast capital flight from Greece.

Against this backdrop is the increasingly terrifying jeremiads, from economists, analysts, commentators and business luminaries, desperately trying to get the attention of someone, anyone, at the wheel of the euro juggernaut. There is a ratcheting up of fearsome rhetoric, a kind of doomsayers’ arms race.

The Nobel economics laureate Paul Krugman has been beating the drums for months if not years, warning about the perils of austerity, but ignoring Krugman’s wise counsel seems to be de rigueur for politicians and senior civil servants all over the western world.

Another prominent US economist, Tyler Cowen, gave ambiguity a wide berth when writing in the New York Times this week: “It probably is about time to judge the euro zone as a failed idea – and rarely is it wise to double down on failed ideas.” But most alarming of all was an article by the usually sober economists Simon Johnson and Peter Boone, with the rather disconcerting title The End of the Euro: A Survivor’s Guide, suggesting a Bear Grylls-style economics special on the Discovery Channel. It begins: “In every economic crisis there comes a moment of clarity. In Europe soon, millions of people will wake up to realise that the euro-as-we-know-it is gone. Economic chaos awaits them.”

Trust me, it gets even more terrifying when they start throwing around numbers like $185 trillion – this is the zombie-apocalypse school of economics.
These are the sort of sentiments that are conspicuously absent from the ECB’s convergence report, understandably enough, but for those eight EU member countries on the outside of the euro zone looking in, discovering that they didn’t pass muster must have felt like a blessed relief. For the rest of us, I’m afraid the doomsayers are not going to run out of evidence-based ammunition any time soon.

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