The realization that the European debacle is much more an issue of political harmonization and Empire-building than one of pure economic band-aid provision should be clear to any- and every-one who has followed the words and deeds of the various European factions for the past year or two. Yesterday, we discussed the dithering and competing camps but what is really critical is to understand how we got here and what the underlying social and political wills are among all of the players. There is no better summation of the formation, driving forces, and tensions among European leaders and central bankers than Phillip Bagus' 'Tragedy Of The Euro'. From the simple divergence of the dual visions of Europe with northern libertarians and southern socialists to the Bundesbank's fearsome reputation for showing up weak governments, Bagus offers a clear perspective on why the EMU is a 'self-destroying' and 'conflict-aggregating' system but counters that with some views on what the outcome will be and how French governmental pressure remains the cornerstone of the establishment of a European Empire for better or more likely for worse.
The Tragedy of the Euro explains why the Eurosystem almost collapsed in May 2010 when the Greek sovereign debt crisis spread to other PIIGS countries.
It explains how the system creates money out of nothing and creates perverse incentives for governments that lead to its own destruction. Without a reform, the Eurosystem is doomed for failure.
Beside the European monetary institutions, the book also describes the political interests behind the euro. The single currency was an important strategical tool in the plan of European socialists. It served to get rid of the Bundesbank and the DM that served as brakes on European inflation.
In his conclusion, Bagus points out that:
The institutional setup of the EMU has been an economic disaster. The Euro is a political project; political interests have brought the European currency forward on its grievous way and have been clashing over it as a result. And economic arguments launched to disguise the true agenda behind the Euro have failed to convince the general population of its advantages.
The Euro has succeeded in serving as a vehicle for centralization in Europe and for the French government’s goal of establishing a European Empire under its control—curbing the influence of the German state.
...and in response to what the future will bring for a system whose incentives destine it for self-destruction, he sees three possibilities: first, the system will break up; second, the Stability and Growth Pact (SGP) will be reformed and finally enforced; and third, incentives toward having higher deficits than other countries will lead to a pronounced transfer union. In the current crisis, it seems that governments are hovering between options 2 and 3 - what scenario will finally play out is anyone's guess and with Greece's March deadline looming, perhaps now is a good time to read and understand what is really at stake for the Eurozone.