With its future and survival increasingly topics of discussion, this post looks at the eurozone and two key questions. Firstly, are the eurozone’s member states too different to share a currency? Secondly, if the euro is to survive, will it need tax harmonisation and a big increase in federal spending? It answers these questions by comparing the eurozone and its members to the U.S. economy and its States. Read more
With so much of the focus of the media and markets on Greece and its PIGS neighbours in the eurozone, one could easily forget that the UK will have the largest deficit in the EU this year and next. This post suggests that being outside the eurozone is a two-way street for the UK. The lack of restraint on its fiscal policy is already showing, with a simple index of government finance statistics placing the UK finances as the weakest of 24 developed countries. Read more
Ricky Gervais has a very funny sketch about how ludicrous the children’s rhyme, Humpty Dumpty, is. In particular, employing horses, who don’t even have thumbs let alone opposable ones, to put him back together again. Actually, it’s so good, I’m going to embed it here:
[youtube=http://uk.youtube.com/watch?v=hYytaZ06Hco]
Anyway, spurious introduction aside, apparently according to the Financial Times (thank you irisheconomy.ie), the euro is in danger of becoming our very own Humpty Dumpty, thanks in no small part to the risks associated with Ireland (as well as Spain and Greece). The video is well worth a watch for the spreads he shows emerging for the triumvirate of risky eurozone members. He refers also to intrade prices of 30% for one country pulling out of the eurozone in the near future, which he rightly points out are amazing odds for what would seem to be such an extreme event.
And if that were to happen, would anything policymakers try to do in response to fix the euro as a viable reserve currency be just the equivalent of sending all the King’s horses to mend a broken egg? Interesting times…