Yet Another Reason Why the Euro Is Doomed (October 17, 2011)
The euro crisis is already concrete in everyday life in the debtor nations, but it remains abstract in the donor nations. Imposing hardship on the northern citizenry to "save" the euro is politically impossible because the "gains" from the hardship are theoretical while the hardships will be immediate and real.
I have previously discussed the many profound financial reasons why the euro is doomed. But there is another political/financial reason why the euro's unraveling is inevitable. To understand this dynamic, we must start with this reality: in the wealthy countries of the north, the crisis is abstract; there is so much wealth and apparent financial stability, the notion that some sort of real-world hardship could actually spread from the southern Eurozone to the north is simply impossible to grasp.
In the nations impacted directly by the crisis, there is nothing abstract about the unraveling; it is now part of everyday experience.
We can distill this profound disconnect between the abstract (northern member nations) and the concrete (southern member nations) down to a simple question: how can leaders of still prosperous nations to whom the crisis is completely abstract in terms of daily life possibly make the kinds of decisions needed to impose hardship on their populations for a "cause"--"saving the euro"--which has no apparent connection to their everyday lives?
The answer is that it will be impossible for political leaders to impose hardships in the real world (higher taxes, austerity, etc.) for "gains" (saving the euro) which are invisible and abstract.
The costs of austerity and much higher taxes needed to fund trillions of euros of bank/sovereign bailouts will be immediately felt by the taxpayers and citizens of the northern "donor" nations, while the supposed gains reaped by saving Euroland banks and bondholders from any losses are at best theoretical: in practice, the real benefits would flow from forcing the banks into recognizing their insolvency and by writing off all the bad debt in the Eurozone, effectively wiping out the banks and bondholders.
Erasing debt also erases assets. But if the debt can never be paid, then the asset has already ceased to exist in every way but a bogus accounting entry.
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