Another sharp piece by Tim Worstall, this time over at Forbes:

For labour and product market protectionism, decent public sector wages and benefits, are the “European Model”. And what’s being said here is that you can either have the European Model or you can have the European Currency.

His article links to this fine piece of work by Peter Boone and Simon Johnson which explains in expert but readable detail just where the Eurozone has gone wrong and why it is fast running out of recovery road.

You have to be smarter than I am to understand some of it, but the core point shines through: the Eurozone has never agreed what ultimately underpins the whole system, but everyone has just ‘assumed’ that it will be ok on the day if anyone asks.

The Germans had a good answer to what props up the Eurozone: the Rules! But they themselves cut corners when it suited them, plus the Rules required a degree of Teutonic discipline and honesty which some governments found too, ahem, strict

Thus EU banks and governments alike have been busy assuming that regardless of how they pile up debts between themselves, nothing can go wrong. Hey, how can anything go wrong? We’re the sunny EU uplands, full of nice moderate social democrats and the very best climate change and gender-neutral principles! We uphold Solidarity!

In short, they believed their own propaganda. .

And that was fine until the markets started to ask more and more awkward questions. Not getting sensible or credible answers from the Eurozone’s grandees, the markets have responded (as they of course should) by pushing up interest rates to lend more money into the Eurozone’s maw.

This ‘subjective’ move of pricing uncertainty/risk higher than certainty/less risk in turn in fact makes things ‘objectively’ harder for Eurozone countries, so the whole problem starts to feed on itself at ever-greater speed.

Boone and Johnson suggest some radical moves that the Eurozone grown-ups might take to hack their way out of the moral hazard disaster area they now inhabit. Cutting public sector wages – and benefits. Removing ‘job protectionism’. 

But as Tim explains, these very things are what the EU primarily is all about. Benign and comforting Social Europe, not some nasty capitalist place like the USA or China where there’s just no Solidarity:

Who was it who said each man kills the thing he loves? For that’s exactly what the European Union enthusiasts seem to have done, they’ve set up the monetary union so incompetently that in order to maintain it they’ve got to kill that European social democrat model they were hoping to preserve.

Listen – and soon as the gravy train shoots of the rails you’ll start to hear the screams of anguish from ‘civil society’ and the firms who supply those communist-style building-high banners for EU programmes in Brussels.

Let’s abolish the European Parliament while we’re at it.