Why The Euro Has Stalled

27 May 2012

By Ed Morrissey

In his latest Afterburner series, Bill Whittle offers a couple of themes warning about the severe turbulence in the Eurozone and the increasingly likely crash of its common currency.  Bill, a pilot himself, discusses the crash of an Airbus into the south Atlantic a few years ago as a parable for excessive shielding of critical signals, and the resulting disunity and counterproductive approaches that follow from it:

Frankly, the information on the Air France crash is rather unnerving.  I hadn’t heard those details before now, but it sounds like a great reason to stick with Boeing when possible.  It works well as an analogy in this case, though, and perhaps in a few others.  For instance, the problem in rapidly-rising health-care costs is a combination of technological advances that are difficult to comprehend, a legal atmosphere that forces providers to practice defensive medicine unnecessarily, and the shielding of price signals from consumers by the presence of third-party payers.  Because we don’t see the problems clearly, we respond in irrational ways — and because we tend to fear what we don’t comprehend, we’re reacting by making the third-party payer and signal-shielding issues worse instead of better.

Europe has a reason for the disunity, which goes to the core of their experiment: multiple sovereign nations managing a single currency.  Germans end up having to suffer the consequences of irresponsibility in Greece, Spain, and France without having any real political power to prevent or punish it, short of pulling out of the euro.  That has always been the rot at the center of the euro, and it was just a matter of time until it became a critical problem.  The only way the euro would work in the long run would have been a federalization of Europe into one sovereign entity, an outcome that its peoples clearly do not want and which European language and cultural barriers wouldn’t allow even if popular sentiment supported unification initially.  The UK looks like the most brilliant nation in Europe for its longstanding and prescient Euro skepticism.

The US doesn’t have that problem with the dollar; we just have the same sense of unreality and problems reading the signals.  We can act to prevent the dollar’s stall that will surely come when the entitlement collapse arrives.  The only question is whether we will.