The Euro Crash Refuses To Go On Vacation
Finnish Finance Minister Jutta Urpilainen set the scene for the long European summer break when she declared that Finland was a dedicated member of the Eurozone, eager to solve the crisis, but “not at any price”; it wouldn’t agree to take on “collective responsibility for debts and risks of other countries” via a banking union. And if push came to shove: “We are prepared for all scenarios, including abandoning the Euro.”
A spokesperson had to do some furious backpedalling: Finland wasn’t planning to abandon the euro; such assertions were “simply wrong,” her words had been misinterpreted. Nevertheless, this was the first time ever that a government official of a triple-A rated Eurozone country publically admitted that they were making contingency plans for ditching the euro—and worse, that there was a desire to do so under certain conditions.
The road to hell, I mean the road to the euro, was paved with good intentions—and signposted with lots of warnings that at the time were ignored, downplayed, or ridiculed. But one by one, they turned out to be correct. The warnings continue, along with efforts to sweep them under the rug which is more difficult now as the dimensions of the debacle have become apparent for all to see.
And so, in an open letter, 172 economists of “German-speaking countries,” including Ifo President Hans-Werner Sinn, warned citizens and politicians about the decisions of last week’s EU summit—though there’s still no agreement as to what has actually been decided. They were worried about a Eurozone banking union that would collectivize bank debts, which are “almost three times as large as sovereign debts,” and in the five bailed-out countries alone amounted “to several trillion euros.” Taxpayers, retirees, and savers of “still solid countries” must not be held responsible for them. “There is only one group that should and can carry that burden: the creditors themselves.” In other words: banks must be allowed to fail; bank creditors must take the losses; let the market economy do its job.