A Pig’s Breakfast

In the wake of the Greek debt crisis, some, like the French, have called for a European economic government, while others, like German Finance Minister Wolfgang Schauble, have called for an IMF-style European Monetary Fund. But saving the euro really requires a return to the fiscal discipline demanded by the EU's Stability and Growth Pact before the French and Germans abandoned it.

LONDON – The Greek debt problem has been poorly handled by Europe’s decision-makers. European Union heads of government, and the European Central Bank, initially rejected the idea of involving the International Monetary Fund, but without a fall-back plan. It is hard to avoid the conclusion that part of the motivation for this was French President Nicolas Sarkozy’s reluctance to see Dominique Strauss-Kahn, the IMF’s managing director, ride in from Washington to the rescue of the eurozone. Strauss-Kahn is, of course, likely to be Sarkozy’s Socialist rival in the next French presidential election.

Is Greece the “canary in the coalmine” – the warning that tells us that Europe’s monetary union is on the verge of dissolution, with the other three of the famous PIGS (Portugal, Italy, and Spain) lining up like dominoes to fall? George Soros fears this might be the case, and gives the eurozone only a 50% chance of survival in its present form.

Certainly, the episode highlighted flaws in the way the euro’s governance – flaws that are no surprise to some of those involved in creating the common currency. Helmut Kohl, one of the euro’s principal parents, said in 1991 that “the idea of sustaining an economic and monetary union over time without political union is a fallacy.” Margaret Thatcher, from the opposite camp, said in her memoirs: “I believe the European single currency is bound to fail, economically, politically and indeed socially, although the timing, occasion and consequences are all still unclear.” There may now be a market for a Greek translation of her book.

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