Friday, July 29, 2011
Although I have previously expressed a level of confidence in the Euro (See Why the Euro Will Remain Strong), reluctance by the EU to recognize its own failings and implement necessary adjustments, will ultimately result in its own eulogy.
Not affording PIIGS an opportunity to revert to their independent currencies and release them from the strict fiscal discipline of the EU, will ultimately exacerbate the challenges the EU faces and thwart free-market adjustments in the economy, necessary for a sustainable recovery.
There are several factors that are preventing EU officials from pursuing a course that will facilitate a comprehensive strategy that will ensure the survival of the Euro and economic salvation.
- Firstly, several of the pundits are constrained by a limited understanding of the dynamics and fundamentals that are at play in Europe. Common mistakes and economic conclusions are being thrust on to the conference tables of the European Parliament and consequently, the impact which a rescue plan can have on a recovery is limited, if not downright dangerous.
- Secondly, decisions that are fundamentally supportive of a recovery are being sidelined in favor of political and other self-interests.
- And thirdly, there is a perception that austerity will resolve all economic ills. Clearly, a new dispensation is required, but a recovery requires investment into those specific areas that will contribute towards rapid and sustainable growth in GDP.