European politicians' attempts to resolve the debt crisis splintering Europe has resulted in a split.
Germany and other northern countries - insistent on fiscal discipline and economic reforms - versus southern European economies who are reluctant to implement reforms and cut spending levels.
It is this problem that truly defines the problems of a single currency and economies that are diverging away from each other.
Move away from a single currency
If these struggling southern economies such as Spain and Italy had their own currency, the management of this problem would be so much easier to bear. However, there would also need to be an acceptance from those peripheral countries to actually commit to implement the reforms necessary to turn their economies around. Unfortunately for them, this option is not open to them and as such the fiscal adjustment becomes that much more difficult, which begs the question....maybe this option should be open to them?
Despite political assurances to the contrary, there is no clear evidence that the Spanish or Italian governments have the necessary political clout to overcome trade union and other vested interest opposition to the status quo that have been a part and parcel of Spanish and Italian business and social culture for decades.
It is important to remember this when looking for a solution to this crisis, because the current solution of the 'extend and pretend' approach is only likely to sentence Europe to a lost decade of negative or sub-par growth.
What Europe needs now are politicians prepared to think the unthinkable; to pull back and admit that the European project, as it is, requires a massive rethink. It would appear that for now, Europe lacks politicians capable of such a cerebral leap as they continue to insist that the current path is the only path.
It is this definition of insanity of repeating the same mistake over and over, hoping the outcome will somehow be different that has come to define Europe's problems.
In the last four years this definition could well be applied to the European sovereign debt crisis and policymaker's response to it, as first Greece and then Ireland and Portugal succumbed to bailouts and austerity programs.
When Greece first applied for aid in early 2010, the opportunity to 'lance the boil' was passed up and the decision was made to bailout Greece to protect German and French banks. European policymakers have always sought to deflect the blame for Europe's woes to Anglo Saxon speculators rather than take responsibility for the flaws in the project which were well-known from the start.
For political reasons, French and German policymakers chose to ignore the economic arguments. They trusted that when the flaws were exposed for all to see that electorates would be so terrified of the prospects of a break-up they would pass up their democratic rights to manage their own sovereignty, and agree to closer political and fiscal union.
As an exercise in breathtaking arrogance, it is hard to beat and is symptomatic of the political atmosphere and response to the crisis.
German Chancellor Angela Merkel and other EU policymakers are fond of saying that the solution to the crisis is "more Europe". Unfortunately they could not be more wrong.
Europhiles point to the US as the model for Europe as do some US commentators; however the two models are entirely different.
The US is a country borne from an entirely immigrant population with no common history as such, and the slow economic convergence there was not without its own difficulties, particularly the American Civil War, which cost many lives.
The Federal Reserve was only formed in 1913 to facilitate fiscal transfers around the US from weaker to poorer states, and the model works because each state buys into the idea of a common currency and a deep sense of patriotism.
You cannot make the same argument for Europe, which has hundreds of years of tribal rivalries and a history of changing borders and the nation state.
The arguments for a common currency are noble ones, borne out of the ashes of two World Wars and economic convergence, but that is what the European Free Trade Area was designed to do as countries sought to lower barriers to doing business.
The whole European project has been designed with the end goal of full political convergence behind the backs of European electorates, which in itself tells you that the project was always going to be a tough sell.
To survive now in any form, individual countries would have to agree to full scale debt pooling, political anathema to fiscally conservative countries like Finland, Austria and Germany, who have largely run their economies on fairly conservative lines for the past ten years. They would also have to put aside nationalist rivalries that have been prevalent in Europe for centuries.
That seems somewhat unlikely and given that Finland's economy contracted by 0.3% the last quarter, the pressure within that small country to push back against blank cheques will only increase, along with more stringent collateral demands.
It's not hard to see why the governments of countries like France, Spain, Italy and Greece like the idea of Eurobonds, or debt pooling, given it reduces the pressure on them to reform their economies, however debt pooling would only serve to buy time for the euro, and any lack of progress on economic reform would increase friction between the more efficient northern economies and the less efficient southern ones, exacerbating tensions in the long term.
One only has to look at the response of the Italian government in November last year when the ECB started buying Italian bonds and yields fell back. Italian policymakers rowed back on making changes to labour market regulations requested by Brussels, due to their political unpopularity.
Unelected Italian PM Mario Monti bemoans the fact that Italian yields remain elevated but the reason for that is largely down to the fact that investors don't trust the Italian government, or any other indebted government for that matter, to implement the reforms necessary to streamline their economies.
This year's Greek election result could have been a seminal moment in the European crisis in terms of the next stage of the crisis; however fear of the unknown resulted in the Greek population voting for the status quo and the same political parties that put Greece in the hole they are trying to dig their way out of. That's like putting an arsonist in charge of the fire department.
You can't help thinking that it would have been better if Alex Tsipras had won the election because it would have resulted in European leaders having to make some hard decisions with respect to the future composition of the euro currency.
Let's be clear no-one wants the euro to fail, given the potential consequences but it is clearly unworkable in any sense of the word, and for European leaders to insist it is "irreversible" is fanciful, given that Greece will surely have to leave at some point. When that happens Pandora will be out of her box and that in itself will tell markets that the euro is reversible. Better to lance the boil now rather than limp on for the next 10 years.
Survival of the Euro
For the euro to survive in its current format, politicians need buy-in from European electorates across all seventeen nations and for those electorates to agree to have their tax affairs shaped by officials hundreds of miles away in Brussels. They have to sell the idea that this way is the right way, and there is no evidence whatsoever that they can sell that idea in any way shape or form.
You would need parliamentary approval from all European nations to subjugate their fiscal sovereignty to an unelected European treasury in Brussels, which would create all sorts of constitutional issues.
Europe's main problem is a broken and overleveraged banking system, and until politicians like Spain's Mariana Rajoy deal with that, the crisis will rumble on. The reluctance to wind-up over leveraged Spanish Cajas last year was a huge mistake, and turned a number of small problems into a huge one in the form of Bankia.
Asking voters to bear the cost of political mistakes just won't wash and blaming it on bankers is starting to wear a little thin. The risk is that in trying to hold the euro together, the extreme nationalist tendencies so feared by ordinary people may well come to the fore as extremist views gain currency as voters worry that they are not being listened to.
Losses need to be taken, debt forgiveness or restructuring needs to happen because given the debt dynamics it's difficult to believe that Greece, Spain or anyone else for that matter will be able to grow at a sustainable enough rate to be able to repay the money owed, let alone manage their debt servicing costs.
Austerity and low or negative growth for another 10 years is not a plan; one merely has to take Greece as the perfect case in point and yet that is what is being asked of the Greek population.
Until politicians grasp the reality that the euro is unworkable in its current guise the European economy will continue to limp on as investors pull money out of weaker countries and park it into the stronger ones.
Investors are a fickle bunch and until European leaders restore credibility quickly with some bold and creative solutions, rather than the current painful incremental approach, then it is likely that Europe's economies will continue their downward spiral for years to come.
It only needs one country to break ranks, as dissatisfaction grows within Europe, and the whole edifice could well come tumbling down.
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