The fifth meuron mistake: wasting time on impractical ideas at crucial moments when time cannot be wasted
The sixth and (to date) latest meuron idea followed: let's create a banking union. I have written in many newspapers, including the Financial Times, that it is probably the most dangerous idea of all. Now there is a slow-motion bank-run in the Pigs countries (though in Greece it is in fact fast-motion). The result is that scared people, mostly large institutions, transfer deposit from bankrupt banking sectors in the Pigs countries to more credible ones, in Germany for example. If the meurons transform the European Union into a Banking Union, sick banks will immediately infect healthy ones and in no time money will start leaving the Eurozone to land in more stable and credible banking sectors in other parts of the world.
The mechanics of this process will be very simple. The German banking sector is believed to be stable because the German government is (so the argument goes) strong enough to help its banks in the event of trouble. But if the deposit-guarantee scheme is unified across all countries, investors will immediately calculate that Germany is not resilient enough to bail out the entire Eurozone banking sector - and, hey presto, the German banks will be far riskier than before.
The sixth meuron mistake: conceiving a banking union which will not cure but rather spread infection
I am sure that if meurons take this path, they will more than justify the mega-meurons accolade. The last mistake available to them will be to force the ECB to print money without limits. And once you kill the people's trust in the currency, you kill the euro itself - and possibly the European Union as well.
The exit strategy
More than two years ago I wrote that this crisis can be stopped at a relatively low cost, via two potenttial strategies. The first postulated that the Pigs countries, which are insolvent if multiyear recession is assumed, should be forced into drastic austerity programmes (much deeper than today); that at the same time a large part of their debt should be written off (it would then have been enough to cancel only 50% of the Greek debt); and that Greece, and possibly some other members, should leave the Eurozone in order to regain competitiveness.
If this were to prove politically impossible, the second strategy proposed the creation of a new euro (where, in short, Greece would exchange old euros for new at a 2:1 rate, Italy and Spain at a 1.5:1 rate, Germany and other solid countries at parity). This way the Pigs countries will get a lot poorer (which they deserve anyway), but because of devaluation will quickly regain competitiveness and start growing again.
Both these recipes would create a short-term mess, but lead to good outcomes. If they had been applied in 2009, the crisis would today be behind us. But politicians hate solutions that create a moderate mess in the short-term, even if they do solve the problem - because in the short term there are always elections to worry about. So politicians prefer decisions that "kick the can down the road" and buy some time, even if they create a risk of much bigger mess later.
This is precisely what has happened in the Eurozone. Mega-meurons have kept kicking the can down the road, until the road ended with a thick brick wall. Even now, the meurons still have a choice. They can hit their heads against the wall in hope that it falls apart and the can-kicking process can continue; or, late as it is, they can follow another route to end the crisis.
Readers will have no problem guessing what the meurons will do. They are morons after all.
