Bob Hockett on Bloomberg View: 'Save Europe’s Marriage With a Trial Separation'

Friend of the network Bob Hockett (Cornell/IMF) has forwarded this piece that he published last summer on Bloomberg View, entitled 'Save Europe's Marriage With a Trial Separation.' Despite all that has changed in six months, the analysis remains timely and well worth the read. A taste is below.

* * *

The euro is not a fundamentally bad idea. It just needs a timeout while some critical kinks are worked out.

Europe is at least two economies: a northern tier we might call Hanseatica and a southern one we will call Mediterranea. The Hanseatic economy is primarily commercial and industrial, and relies on exports. The Mediterranean economy remains more pastoral and agricultural, and relies on debt for its purchases of manufactured goods from the north.

The divide, rooted in topography, climate and culture, is diminishing, but is still in place. This simple distinction underwrites an imbalance -- one that the shared currency magnifies and worsens.

(…)

One Europe is still the endgame. The two euro zones’ long- term unity and mutual devotion would survive -- and be better for -- a needed timeout. Work would immediately begin on the full fiscal and transfer union, and a good plan and firm commitment would counteract any panic effects that a strategic retreat might have.

It is said that the euro, like the European Union itself, is as much a political project as it is an economic one. If Europeans still think the political project is worthwhile, then it is worth showing some flexibility in repairing the still-developing economic substratum. The way to do that is with a federalized ECB and two euros.