What Comes Together, Flies Apart

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An experiment gone awry? Stratfor provides a clear, concise analysis of why the European Monetary Union was formed in the first place--and why it is unlikely to survive in its current form.

[excerpt:]

Monetary union means that all participating states are subject to the dictates of a single central bank, in this case the European Central Bank (ECB) headquartered in Frankfurt. The ECB’s primary (and only partially stated) mission is to foster long-term stable growth in the eurozone’s largest economy — Germany — working from the theory that what is good for the continent’s economic engine is good for Europe.

One impact of this commitment is that Germany’s low interest rates are applied throughout the currency zone, even to states with mediocre income levels, lower educational standards, poorer infrastructure and little prospect for long-term growth...The result has been massive credit binging by corporations, consumers and governments alike, inevitably leading to bubbles in a variety of sectors. And just as these states soared high in the first decade after the euro was introduced, they have crashed low in the past year. The debt crises of 2010 — so far precipitating government debt bailouts for Ireland and Greece and an unprecedented bank bailout in Ireland — can be laid at the feet of this euro-instigated over-exuberance.

Read more: Europe: The New Plan | STRATFOR

And this from John Carney, posted at Minyanville:

"The decision by the European Union last week to create a permanent bailout fund may not end the sovereign-debt crisis but it will -- eventually -- end the European Union as we know it." [More here.]