The euro zone’s steady inexorable crisis has accelerated as efforts to form a Greek government failed and new elections were called. The Financial Times reports that British Prime Minister Cameron will echo comments made earlier in the week by Canadian Finance Minister Jim Flaherty that Europe has to decide whether to build a true monetary union with risk-sharing institutions (fiscal transfers) or acknowledge that the single currency has failed. I suspect that Minister Flaherty said what many of his colleagues have been thinking — but didn’t have the nerve to say.
The status quo is a recipe for more uncertainty; that hurts everyone. And, as I have argued in a previous post, Europe is now in a world where efforts towards more of the same will lead to a political reaction which makes the situation go from bad to worse. People will understandably ask: "if the moderate middle ground espouses policies that produce 25% unemployment, why not try the fringes of the left or the right?" That outcome, sadly, is what is likely to happen in Greece.
Europe may not like the message, but Minister Flaherty has spoken truth to power. (If a friend doesn't tell other friends that they are hurting themselves and others, what kind of friend are they?) That message will be amplified by PM Cameron’s remarks later today. In framing the choices in such blunt terms, the two men might raise the pressure on Europe to do the right thing. The hope is that the euro zone’s leaders will heed the call and grasp the nettle — putting in place arrangements either to make the euro work, or to minimize the collateral damage of its failure. The danger, of course, is that they will ignore it and try to muddle through. Unfortunately, given the record of EU decision making over the past couple of years, you can't count on the former and have to assume the latter.
Minister Flaherty and PM Cameron may face a certain "you can't say that" from their international colleagues, but that doesn't make what they are saying any less relevant or timely.