The next few days will transform Greece and Europe

As it turns out, the Greek crisis ends not with a bang, but with a referendum.

It has been easy to ignore the doings in Greece for the past few years, with the perpetual series of summits in Brussels that never seem to resolve anything. But it’s time to pay attention. These next few days are shaping up to become a transformational moment in the 60-year project of building a unified Europe. We just don’t yet know what sort of transformation it will be.

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Whatever the exact phrasing of the question (and assuming the referendum goes forward as planned), it really boils down to this simple choice:

Russia’s Putin calls for regional currency union

(Reuters) – Russian President Vladimir Putin proposed on Friday creating a regional currency union with Belarus and Kazakhstan, Russia’s main partners in a union of ex-Soviet states facing growing economic challenges.

Putin made his proposal at a meeting with the Belarussian and Kazakh presidents, who did not respond in public but have been lukewarm about such proposals.

Euro Officials Begin to Weigh Greek Exit as Euro Weakens (Update 1)

“We’re really getting to a denouement,” Michael O’Sullivan, head of portfolio strategy at Credit Suisse Private Banking, said today in a Bloomberg Television interview. “We’re getting to the part where a decision has to be made” on whether Greece leaves the 17-nation currency union, he said.

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A Greek departure from the euro could trigger a default- inducing surge in bond yields, capital flight that might spread to other indebted states and a resultant series of bank runs. Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.

Full article: Euro Officials Begin to Weigh Greek Exit as Euro Weakens (Update 1) (Bloomberg)

‘Germany Has Been the Winner in the Globalization Process’

SPIEGEL: What advice would you give Merkel and her counterparts? Should they tear the euro zone apart?

Rogoff: No, certainly not. We are talking about bending not breaking, with one or more periphery countries allowed to leave temporarily in order to enjoy greater flexibility. There is currently no simple solution for this unparalleled crisis. The big mistakes were made in the 1990s.

SPIEGEL: Does that mean the whole idea of the euro was a mistake?

Rogoff: No, a common currency for countries like Germany and France was a reasonable risk, given the political dividends. But it was a grave mistake to bring all the south European states into the euro zone purely for reasons of political union. Most of them were not ready for it economically.

SPIEGEL: That may well be, but the fact is that now they are part of the monetary union, and that can’t simply be unravelled.

Rogoff: Which is why there is only one alternative: Either the euro completely collapses — with all the catastrophic consequences that would entail — or the core members of the currency union manage to turn the euro zone into a genuine political union.

SPIEGEL: Europe has recently agreed on a fiscal compact committing all members to better budgetary discipline. Is that a step in the right direction?

Rogoff: Yes, but it will by no means suffice. All this treaty does is give the markets the temporary illusion that the problems have been solved for now. It has achieved nothing more than that.

SPIEGEL: What is needed instead?

Rogoff: What the monetary union needs more than anything is a central government, including a a finance minister, with significant tax and spending authority. The individual countries should also stop insisting on national control of banking regulation. That is a matter that should be dealt with exclusively at European level.

SPIEGEL: Do you honestly believe that the countries in the euro zone can bring themselves to hand over that much more power to Brussels?

Rogoff: The terrible thing is that few countries in Europe seem genuinely prepared for that. Those politicians who know what is needed keep quiet, fearing opposition from the voters. But the pressure of this crisis will create a momentum whose scope and impact we cannot yet imagine. At the end of the day, the United States of Europe may well come about a lot quicker than many would have thought.

Full article: ‘Germany Has Been the Winner in the Globalization Process’ (Spiegel Online)