{"id":9333,"date":"2011-11-09T14:52:15","date_gmt":"2011-11-09T19:52:15","guid":{"rendered":"http:\/\/www.prosebeforehos.com\/?p=9333"},"modified":"2012-12-26T16:08:00","modified_gmt":"2012-12-26T21:08:00","slug":"the-death-of-the-euro","status":"publish","type":"post","link":"https:\/\/www.prosebeforehos.com\/article-of-the-day\/11\/09\/the-death-of-the-euro\/","title":{"rendered":"The Death Of The Euro"},"content":{"rendered":"

The Article:<\/strong> Is this how the euro ends?<\/a> by Ezra Klein in the Washington Post.<\/p>\n

The Text:<\/strong> Here\u2019s how it was supposed to go: Greece first. Then, perhaps, Portugal and Ireland. If things got really bad, Spain. If the world — or, more precisely, the euro — was coming to an end, Italy. It was not supposed to go Greece and then Italy. No one was prepared for that. The markets weren\u2019t prepared for that.<\/p>\n

(Kristen Boghosian and Anqoinette Crosby\/The Washington Post) And so the markets are falling. The Dow is down 290 points. The Stoxx 50, a blue-chip index for the euro zone, is down 2.5 percent. Italy\u2019s borrowing costs have skyrocketed. The Euro has plunged.<\/p>\n

The problem, put simply, is that Italy is both too big to fail and too big to save. It\u2019s the eighth-largest economy in the world. At $2 trillion, it\u2019s about seven times as large as Greece\u2019s $300 billion economy. France and Germany\u2019s banks alone have $600 billion in exposure to Italian debt. But Barclay\u2019s says Italy is \u201cnow mathematically beyond the point of no return.\u201d Silvio Berlusconi might be out, but changing governments does not change arithmetic. And so the question is simple, and stark: If there wasn\u2019t the will to really save Greece, where would the will — and the money — come from to save Italy?<\/p>\n

<\/p>\n

The answer that\u2019s so troubling the markets right now is that it perhaps won\u2019t come at all. Market participants and commentators are increasingly thinking the unthinkable: Perhaps this really is the end of the euro. \u201cIf policymakers had understood two decades ago what they know now,\u201d writes Martin Wolf in the Financial Times, \u201cthey would never have launched the single currency. Only fear of the consequences of a break-up is now keeping it together. The question is whether that will be enough. I suspect the answer is, no.\u201d<\/p>\n

Paul Krugman put it more piquantly. \u201cThis is the way the euro ends. Not with a bang but with bunga-bunga.\u201d<\/p>\n

The problem is that if Italy can\u2019t be saved, there\u2019s no real point in saving Greece. Greece knows it and France and Germany know it. So the moment it becomes clear that the euro zone can\u2019t hold, it ceases to make sense for Greece\u2019s politicians to implement unpopular austerity measures or for Germany\u2019s politicians to back unpopular bailouts. At that point, the question is no longer how to save the euro zone, but how to manage its dissolution. And no one really knows what that will look like, or whether it can be done well. Which is why the markets are so terrified.<\/p>\n

The only thing standing between the euro zone and total dissolution is the European Central Bank. But it\u2019s not quite right to say the bank is standing there. Rather, it\u2019s standing off to the side somewhere. But the markets still hold out some hope that the ECB will step in.<\/p>\n

As Alexander Friedman, the chief investment officer of UBS, wrote in the Financial Times, \u201cThe European Central Bank, now led by Mario Draghi, must accept its role as the lender of last resort in Europe. The ECB could stop the panic engulfing Italian and Spanish government bond markets, and it is the only institution in the world with this power. To do this, it should promise an unlimited liquidity backstop to sovereign bond markets of solvent nations.\u201d<\/p>\n

But a week ago, in his first news conference, Draghi dismissed the ECB\u2019s role as lender of last resort. \u201cI don\u2019t really see that as the remit of the ECB. The remit of the ECB is price stability over the medium term,\u201d he said.<\/p>\n

There\u2019s still hope that the ECB might change its mind. But if they don\u2019t, there\u2019s little hope for the euro zone to survive.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Article: Is this how the euro ends? by Ezra Klein in the Washington Post. The Text: Here\u2019s how it was supposed to go: Greece first. Then, perhaps, Portugal and Ireland. If things got really bad, Spain. If the world — or, more precisely, the euro — was coming to an end, Italy. It was […]<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[259],"tags":[],"yoast_head":"\nThe Death Of The Euro - Prose Before Hos<\/title>\n<meta name=\"description\" content=\"The Article: Is this how the euro ends? by Ezra Klein in the Washington Post. The Text: Here\u2019s how it was supposed to go: Greece first. 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