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Amazing Analysis of the European political / economic landscape

Prof Pettis

here

Some "Money Shots"

"For ten years I have used mainly an economic argument to explain why I believed the euro would have great difficulty surviving more than a decade or two.  It seemed to me that the lack or fiscal centrality and full labor mobility (and even some frictional limits on capital mobility) would create distortions among countries that could not be resolved except by unacceptably high levels of debt and unemployment or by abandoning the euro.  My skepticism was strengthened by the historical argument – no fiscally fragmented currency union had ever survived a real global liquidity contraction."
 The point I was trying to make in the passage is an obvious historical one – that the resolution of Europe’s crisis will inevitably involve a difficult political debate over apportioning the cost of the resolution.  In one of my favorite history books (The Financial History of Western Europe), Charles Kindleberger argued that the political structure of Europe after the First World War guaranteed that different economic interests would necessarily struggle over income distribution.
When it came to deciding how countries would adjust to currency and debt misalignments of the 1920s and 1930s, the main issue, according to Kindleberger, was “whether deflation and unemployment would saddle a major share of the load on the working class, as contrasted with the rentier.”  He goes on: “Keynes observed in 1922 that the choice between inflation and deflation comes down to the agonizing outcome of a struggle among interest groups.”

Read the full blog, really worth it!

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