VOX
December 3, 2010
Irish interest spreads did not fall and contagion continues. Here one of the world’s leading international economists explains why. Short-sighted, wishful thinking by EU and German leadership designed a package that is not economically feasible in the long run (it would trigger a vicious debt deflation spiral) and it is not politically sustainable in the short run. The Eurozone had better have a Plan B for when the new Irish government rejects the package next year and imposes a haircut on Irish bank bondholders.
The Irish “rescue package” finalised over the weekend is a disaster. You can say one thing for the European Commission, the ECB, and the German government – they never miss an opportunity to make things worse.
It pains me to say this. I’m probably the most pro-euro economist on my side of the Atlantic. Not because I think the Eurozone is the perfect monetary union, but because I have always thought that a Europe of scores of national currencies would be even less stable. I’m also a believer in the grand European project. But given this weekend’s abject failure of EU and German leadership, I am going to have to rethink my position.
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