Eurozone stories

29/11/2011 Comments Off on Eurozone stories

How can we think about the eurozone problems? It is very hard to think of them as they are. It is hard to keep in mind the number of countries, with their different fiscal positions managed by separate governments, and also remember the European banks and global investors and the multiple bond offerings, plus the supranational organisations. I’m a bear of very little brain.

So, we simplify. The experts are telling stories and analogies, and then try to work out the conclusions. Brad Delong points us to Wolfgang Münchau:

The eurozone is now subject to a run by global investors, and a quiet bank run among its citizens.

This massive erosion of trust has also destroyed the main plank of the rescue strategy. The European Financial Stability Facility derives its firepower from the guarantees of its shareholders. As the crisis has spread to France, Belgium, the Netherlands and Austria, the EFSF itself is affected by the contagious spread of the disease. Unless something very drastic happens, the eurozone could break up very soon.

This piece is filled with poetry:

  • a run on the eurozone — A bank run is about self-fulfulling panics, balance sheets, and confidence in the ability to repay debts/depositors. It sounds very scary. But the eurozone is an economy; people produce things and buy things. The economy can grow and continue to pay on claims against it, regardless of asset problems.
  • erosion of trust — This implies an force of nature. Rhetorically, it begs the question of whether it can be stopped or turned around. It makes collapse inevitable.
  • the main plank — Political platforms are built from planks, but they are fancy words rather than actual promises. The rescue strategy now seems less like a plan and more like campaign rhetoric.
  • firepower — Now, the EFSF is a tank or a battleship. It is fighting, but against whom and for what cause? Will it be full of sound and fury (shock and awe), but signifying nothing?
  • contagious spread of the disease — The EFSF becomes human (or at least biological). The eurozone problem has again become natural, just one of those things that humans can ‘catch’. This also suggests that an external doctor needs to administer to the patient.

How can we put all these metaphors together? Is the EFSF is a machine of war, needing a bit of extra weaponry to destroy the enemy? Or is it a feeble invalid, needing to be administered to? What about the crisis — is it an unstoppable force of nature that will eventually collapse the euro? Is it instead a panic attack that could be calmed with the right intervention? Or even still, a dread disease for which there is no cure, and we must flee or be infected?

Of course, it is none of these things. It is a group of people negotiating and renegotiating contracts over debts and repayments. That image isn’t as poetic. However, it lays bare the fact that people created the problem, and people can fix it, too.

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