As explained yesterday on the Deep End, Germany has finally agreed that the European Central Bank can make unlimited purchases of bonds issued by Eurozone debtor nations. As long as the agreement holds, this should mean that the likes of Greece and Spain won’t be going bust any time soon – thus ensuring the continued survival of single currency.
However, as George Soros explains in his landmark essay for the New York Review of Books, this is not the end of the matter:
In other words, this is the sort of medicine that keeps you alive, but stops you from ever getting better. Soros goes on to describe the kind of Europe that will result from the new dispensation:
In fact, far from catching-up, the structural imbalance between the debtor and creditor nations will drive further divergence:
You might think that this is something that already happens elsewhere in other major economies – such as America, where people and power are drawn to core regions, while others become permanent backwaters. But actually it’s not the same at all. We’re not talking about the marginalisation of mere regions, but entire nations.
Furthermore, whereas America keeps its poorer states going through federal spending transfers, in the European new order the peripheral nations are expected to borrow what they need. Given the permanent state of economic backwardness that the wider system condemns them to, how are they supposed to pay this money back?
George Soros is surely right when he says this of the Eurozone’s new order:
As we’ll see tomorrow, two alternatives are proposed – humane, logical, far-sighted alternatives – but, as we’ll also see tomorrow, neither of them have a hope of succeeding.