November 2, 2011
"Europe: How bad will it get?"
Today I attended a terrific event hosted by the Rock Center for Corporate Governance at Stanford on whether the Eurozone will survive in the present form. It seems the answer to this post's titular question is that it's going to get real bad.
Robert Madsen from the Center of International Studies at MIT shed light on this quite dark subject. Madsen cut through all of the jargons and acronyms you might hear in discussions of sovereign solvency and the Eurozone crisis. He highlighted the following key issues:
- The structural flaws in the way the Eurozone was designed (the lack of a common business cycle, cultural barriers and other obstacles to labor mobility, the lack of a fiscal transfer mechanism, and issues with developing a shared political commitment)
- The massive increase in debt, public and private, in some European countries
- The cost of fixing the problem (in short: trillions, perhaps in the double digits)
As Madsen described the possible ways of moving forward, a palpable gloom hung over the room. A major financial restructuring seems unlikely. The present strategy of fiscal austerity and ad hoc measures is not promising. The other possibilities include preemptive changes to the Eurozone and some kind of delayed collapse. The takeaway: fasten your seatbelts.
The Rock Center website may have a video of the event soon.
It's not encouraging that there is now a $400,000 prize for the economist who finds the most orderly way for member states to exit the euro: http://www.policyexchange.org.uk/assets/Wolfson_PR_EN.pdf
Luckily, the prize is denominated in GBP.
Posted by: Madeline Barker Mai | Nov 8, 2011 4:17:33 PM