Thomas Caton and Marcus Walker have an article at WSJ about the prospect of economically struggling EU states leaving the Euro, that includes this interesting-but-what-does-it-mean graph.
Like the graph, the article focuses almost solely on the economic decline in these countries, and uses Argentina’s abandonment of its ten-year experiment in pegging the value of its currency to the U.S. Dollar. Since these countries’ decline in GDP is approaching, or in Greece’s case has tripled, Argentina’s GDP decline, how much further can they go before they start to break away from the Euro?
I see similar arguments for the impending implosion of the Euro from economists and financial writers with depressing frequency. Their error is not solely that they are using a unicausal explanation for a complex phenomenon, but that due to their disciplinary blinders they fail to realize that the Euro is not simply a monetary matter–it’s a political issue in ways they…well, I’m sure most of them do understand, or would find it easy to understand. But few of them build it into their calculations beyond treating it as a public policy to be a kept or abandoned.
When I say it’s political, I mean the Euro is bound up with the whole concept of the EU, which is as much political as it is economic. The most fundamental idea of the EU is to tie Europe together to avoid a return to the endless series of wars that have characterized the past umpteen centuries. That’s why retrenchment on any EU policy has been so hard–the fear of going backward has been much greater than the fear of going forward even with an unpopular policy.
I’m not arguing in favor of the EU. While it seems to have worked overall (Europe, or at least the EU members, has enjoyed something like it’s second-longest spell of peace), there are aspects I don’t much like. I’m just looking at it from the perspective of “what concerns Eurozone members?”
Nor am I making any predictions. Economic concerns in some state or other certainly could top broader political concerns at some point, and Greece may be a particularly likely candidate for that, given the appalling decline in GDP, and their lack of enthusiasm about becoming more German. But when the politics variable is added to the equation, the probability declines substantially (Hanley says, without bother to offer an actual equation or specify the variables more operationally.)
And this helps us see why Argentina is not a good comparison. Argentina’s dollar peg was solely an economic move, and Argentina was not politically integrated with the U.S. in any way comparable to European states’ integration into the EU, so when the economy went south, the solely economic move was easily reversible on solely economic grounds. Argentina is to the U.S. as Greece is to _____________? That’s not answerable by plugging in “EU.” There is no correct answer to that question; they simply aren’t comparable in that way.