4th Iron Law of the Eurocrisis

Nothing ever gets done without creating a crisis first.

The fourth law assists in explaining the periodic fits of brinkmanship politics in the eurozone. There is serious resistance in the Northern tier countries to throwing more money into the PIIGS’ black hole. Northern voters have bailout fatigue, and their parliaments are listening to them.

The problem with refusing to send more cash is that a Greek default, Spanish bank failure or another problem materializing in the periphery would be enough to cause a market panic and perhaps a break up of the eurozone.

In order to mollify angry voters, the status quo must be pushed to the brink. The fear of the unknown is ultimately what gives the politicians the cover to push through unpopular measures. Once markets start gyrating, debt yields begin soaring and the euro falls, it is much easier to convince the resentful electorate of the need to shovel more of their money into whatever bailout is being discussed at the moment.

Brinkmanship works almost all the time, but when it doesn’t the results are catastrophic. See the events leading up to WWI for an example of brinkmanship gone awry.

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