Sure, there are plenty of bad omens regarding Spain’s economic fall. Ever seen 26% unemployment?

Anyways, I stay optimistic against my better nature, partly because I tell myself that its not that there aren’t options; its just that none of the options are in the least bit palatable to member state governments.

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Credit: The Atlantic

The latest from The Institute of International Finance (IIF) argues that Europe would be cratered by a Greek default.

Money quote:

Here’s how the IIF breaks down the costs of a disorderly default: $498 billion to stabilize Portugal and Ireland, $459 billion to do the same for Spain and Italy, a $232 billion capital hit to the ECB, $209 billion to recapitalize European banks, and $96 billion in losses for Greek bondholders. The below chart breaks down how these figures fit into the overall picture.

Photo credit: Gero Breloer/AP Images

In the New York Review of Books this weekend, international financier George Soros gives traction to what should be a well-established fact.

 

 

 

 

 

 

 

 

Money quote:

The euro was an incomplete currency and its architects knew it. The Maastricht Treaty established a monetary union without a political union. The euro boasted a common central bank to provide liquidity, but it lacked a common treasury that would be able to deal with solvency risk in times of crisis.

As has been expected, David Cameron’s government in England declined to provide capital to assist the International Monetary Fund (IMF) and its band aid of the European Union’s ever growing financial crisis.

Money quote:

Four countries not using the single currency also pledged to add to the IMF war chest while Britain refused to commit, preventing officials from reaching the 200 billion-euro target to ease the euro area’s home-grown debt burdens. The U.K. will “define its contribution” in early 2012, euro finance ministers said in a statement after a conference call yesterday

German Chancellor Angela Merkel attends debates at the Bundestag after giving a government declaration on the euro and the current debt crisis on Dec. 2. (Sean Gallup - GETTY IMAGES) On Sunday night, Mario Monti, the

Ezra Klein, reporting in Germany, looks at how Germany has evolved over the past decade.

Klein on the ideological importance of Germany’s role in the EU:

History matters here. A lot. In America, we tend to think of the Eurozone as an economic entity. In Germany, it’s also spoken of as an ideological entity — a political project intended as an answer to centuries of wars and decades of uneasy peace. Giving up on it thus risks much more than mere economic chaos. It risks everything Europe in general, and the Germans in particular, have been working towards since the end of World War II.

In an interview with the Washington Post‘s Ezra Klein, economics professor at Chicago University’s Booth School of Business Austan Goolsbee (who was also a member of President Obama’s Council of Economic Advisers) had severe doubts over the future of the Euro.

Goolsbee:

… the flaw in that was not recognizing the importance of mobility. In Michigan, in the mid-’80s, the unemployment rate goes way up because a lot of factories shut down. And then, the mid-2000s, to pick a date, the unemployment rate in Michigan isn’t that much higher than in the rest of the country. But the main way that happened is people moved. What makes us a workable currency area is that people can move around. And that happened in East Germany too. They could move around. But the Greeks don’t even speak the same language as the Germans. Seven million Greeks can’t pack up and move to Germany. So low mobility, plus having the wrong currency values, plus no subsidies, is a toxic mix.

I have not previously addressed the issue of physical, as well as social and economic mobility on this blog but it makes sense. If there is a job somewhere else in the field you do now, why not move? My only counter to Goolsbee would question the mobility allowed to EU citizens through the schengen treaty. However, I imagine ever after that there exists a real problem of communication via language.

Does this mean Esperanto should be revived?*

Kidding.

Yglesias hopes there’s a plan B for Europe:

…the risk is that American leaders will overestimate our degree of insulation from the European banking system. You never want the people in charge to actually set off a panic by speaking too soon about hypothetical calamities, but we’d all better hope that somewhere in the basement of the Treasury Department and the Federal Reserve they’re prepping a Plan B to keep money flowing even if European finance dries up.