Playing Euro Survivor

20 Euro note

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12 July, 2011

It's starting to look like we're all going to be entertained this summer watching the monetary reality show, Euro Survivor: Who can be the last country left in the Euro? Greece has already been voted off the island, even if it hasn't left yet. Ireland and the Iberians are looking decidedly unpopular, and Italy seems headed downhill as well. (I never understood why Italy was not on financial deathwatch. Is such a massive default just too horrible to contemplate? Or perhaps people just assumed Italy couldn't possibly print lire until Berlusconi has arranged adequate shell companies to siphon the printing contracts discretely into his own syndicate.) My money is on Luxembourg. It seems fair that they should get to keep the Euro for themselves, since I can't remember what their currency was called before the Euro. Belgium may end up with two new currencies. (But what's the first prize? Maybe they get the rump European Central Bank, and a free set of dominoes.)

This has been quite an education for me. I remember, while I lived in Germany in 1992 listening to reports on the BBC World Service about the pound's forced withdrawal from the European Exchange Rate Mechanism, and the consequent transfer of billions of pounds to Soros and Co. At the time, that sounded like an argument for a single currency: After all, you can't sell Sterling short against the Deutschmark and gamble that the BoE will be forced to devalue if there are no pounds to borrow or DMarks to buy. And yet, at the same time, I had a niggling doubt -- it can't be that easy. Many economists were suspicious, but I didn't understand what they were talking about, and certainly never heard of the theory of Optimal Currency Areas, and the like. It turns out, economists know some things, and have some useful things to say about the world. The only problem is, it can be hard to filter the sensible theory out from the posturing, the self-serving opinions and the shills, and the intellectual imperialists who think economists should be taking over all of science -- or at least, all of the social sciences -- because they're really good at doing multiple regression.

Maybe the fake windows and bridges should have told us something...