Lots of things are incredibly complicated and yet oddly simple when you strip down the issues to the basics.

Such as the Eurozone drama.

Amidst all the swirling technical/clever analysis of bonds, treaty provisions, sovereign debts and so on, Marshall Auerback gives us this lively thought:

Germany is in effect also a passenger on the Titanic, as Italian Finance Minister Guilio Tremonti recently noted. It might be in the first-class cabin, rather than steerage (or Irish stowaways, as the Germans no doubt view the former “Celtic Tiger”), but when the boat hits the iceberg, all passengers are affected.

OK, but what’s the nub of the problem?

… it is ironic (and more than a touch hypocritical) that Germany chastises its neighbors, like Greece, or its trading partners like the U.S., for their “profligacy”, but relies on these countries “living beyond their means” to produce a trade surplus that allows its own government to run smaller budget deficits.

But … but … but the Eurozone has rules to manage these tricky situations. Not only rules. Principles!

… there has been a complete lack of consistency of principle. When larger countries such as Germany and France routinely violated spending limits a few years ago, this was conveniently ignored (or papered over), in contrast to the vituperative criticism now being hurled at the Mediterranean profligates. The EU’s repeated tendency to make ad hoc improvisations of EMU’s treaty provisions, rather than engaging in the hard job of reforming its flawed arrangements, are a function of a silly ideology which is neither grounded in political reality, nor economic logic. As a result, a political firestorm, which completely undermines the euro’s credibility, is potentially in the offing

Huh? What are you talking about? President Sarkozy and Chancellor Merkel took decisive new action this week. They sent Herman van Rompuy a letter:

The Euro is the basis of our economic success and symbol for the political unification of our

continent. It stands for the will of Europe to consolidate its internal development and to

jointly meet the challenges of our time. Germany and France, consider it their historic mission

and stand united to protect and strengthen the economic and monetary union and thus the

stability of the single currency.

That’s pretty clear. Strong stuff, surely?

And to judge from the flaccid statement that accompanied the conclusion of the Merkel-Sarkozy summit yesterday, it appears that even at this late stage, policy makers don’t get it, or just cannot summon up the political will for the huge conceptual leap forward required to save the euro. The Germans are paralysed politically and things are moving too fast for their policy makers to respond quickly. And their political leadership has neither leveled with the electorate in regard to the magnitude of the problem, nor the costs associated with ongoing punishments of the profligates.

Still, at least Marshall Auerback foresees a happy ending if Germany itself can’t stand any more of this and abruptly leaps from the Eurozone taking a few honest and efficient states with it:

The Club Med, such as Greece, Italy, and Spain countries are saved because the euro plunges and they get to export their way out of this. The euro becomes a soft currency country again and these countries go back to living with higher inflation, higher exports and probably a generally more comfortable way of life. 

Interestingly enough, the country which really gets screwed in this type of environment is France which is neither a true “Club Med” economy, but has yet to undertake many of the structural reforms of its German counterpart which it is seeking to emulate. Its economy is more akin to that of Italy, but should it seek to become part of the “greater DM bloc”, then its industrial base will likely face a huge competitive threat from Italy.

Read the whole thing. Very carefully. A fine example of clever complex expert work expressed in words and graphs for the rest of us to follow.

 

Well, sure he’s clever. But is he correct to present the choices so starkly and pessimistically? Who knows? I don’t.

 

In this whole accelerating drama over the past couple of years, those who have predicted that things will get worse (and then worse again) have been vindicated by events. Because (in part) the whole Eurozone rests on elemental existential Euro-assumptions about Paternalism, Trust and Solidarity which turn out to be flawed or flimsy – or just not true.