This is a link to a speech by Mario Draghi on the ‘future of the Euro: stability through change’. It is worth reading as it provides an insight into the thinking of the most important policymaker (and I use this word intentionally) of the Eurozone. The following sentence is particularly intriguing: “currencies ultimately depend on the institutions that stand behind them” as it is an admission of the problems facing economics as a professional discipline. It admits that the problem of economic coordination is not about ‘market discipline’ but ‘institutional coordination’. The latter, of course, is all about politics, and requires a policy response that is tailored to the needs of each individual country i.e not a simplistic one size fits all ‘structural adjustment’ in the labour market. But the overall sentiment of the speech indicates to me that the ECB might start buying Spanish and Italian debt.
Politically, of course, the Euro depends on the German government. A poll in the Financial Times today illustrates just how far removed the German electorate are from what needs to be done (and explains the dis-connect between the German government and the rest of Europe). It is unsurprising that the Germans want to cut Greece loose from the Euro. It reflects a growing divergence betweenthe north and south of Europe. The question is whether the German electorate will support Angela Merkel in creating the institutional conditions to support the Eurozone. This ultimately requires issuing Eurobonds across the 17 member Eurozone currency as a pre-condition for economic and employment growth. According to this poll, the German people would rather go it alone. The future of Europe is therefore highly uncertain.