Friday, January 13, 2012

Eurozone's Political Crisis (Not Economic Crisis)

After a long hiatus from the Eurozone crisis, I am back. This time, with more backing from former Spanish foreign minister and former Senior Vice President and General Counsel of the World Bank, Ana Palacio:
Europe’s current crisis is rooted in loss. Untethered from the mooring of Cold War-era bipolarity, Europe was swept off its feet and cast adrift in the currents of a globalized world, unable to find either its place or direction. Most critically, Europe’s old instincts and modus operandi persisted long after the new contours of global affairs had taken shape. 
They still do. That is why, in facing its gravest test so far, Europe seems oblivious: its leaders project confusion and indecision; its citizens exude a mixture of complacency, indifference, and self-doubt; and its institutions are locked in turf battles and remain hindered by laborious procedures and protocol. 
It is also part of the reason why markets are besieging the eurozone so incessantly. What investors sense is not weak economic fundamentals, but Europe’s weak political fundamentals – the absence of a governance structure with real power and the will to use that power to resolve problems. If Europe is to adjust to the requirements of the new “Pacific world,” it does not need fine-tuning; it needs a new design.
I had asked this question before. The Eurozone's refusal to face reality is causing a slow and painful death for its periphery. In Two-Cent Economics, Volume 3 Issue 45, I said:
Personally, observing the way things are going with the Eurozone right now, it feels a lot like watching a tragedy in slow motion. It is agonizingly painful. It would seem like you know a disaster is coming but you can't avoid it. Something like being on the Titanic as it is sinking.
And back to Ana Palacio:
Europe is plagued by three distinct problems. First, it remains incapable of adjusting to the realities of a world whose center of gravity has irrevocably shifted eastward to the Pacific, pulling with it the attention of the United States. Second, more than ever, Europeans are looking inward, as a sense of entitlement meets pervasive skepticism – a combination that permeates to the highest echelons of the Union and EU national governments.
 Source: Project Syndicate

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