What is the opposite of an edgy optimist? It’s not a conforming pessimist but merely the humble realist. Optimism and pessimism are two sides of the same coin with realism being the edge betwixt the two.
The problem with the Edgy Optimist’s post is that he is paying too much attention to market moves. The euro wasn’t dead over the summer, and it wasn’t fixed in the fall and winter. Hence, the current market does not indicate pessimism among market participants. PIIGS bonds yields and stock markets have declined in response to-who knows-what but profit-taking and the shrinking of the ECB balance sheet are as good explanations as the political machinations in Italy and Spain.
The euro is causing the slow decay of the Eurozone economy. Its very existence causes imbalances among its members. As long as the euro exists, so will these imbalances. As long as the system remains weak, its survival is in doubt no matter what you think the market is telling you.
The cult of the euro loves to paint the euro as this great love-fest that has prevented war on the continent for almost 70 years. This characterization is wrong.
What prevented war in Europe was NATO, millions of American and British troops standing in harms way in Germany and trillions of dollars spent by the U.S. and a broke U.K. during the Cold War to counteract Soviet aggression. The Nobel Prize should have been awarded to the troops who manned bases in West Germany until the dissolution of the USSR, not the eurocrats.*
It is optimistic to believe that the EU prevented WWIII, but it is realistic to know that trained, armed soldiers and the best weapons in the world are really what did the job.
At least author admits his bias, and this is what leads him to misunderstand the costs of a euro dissolution. He fails to see that the costs will not be borne equally by the members.
Creditor countries like Germany with large Target2 credits will be hit the worst. The Germans will also revert to a fairly valued mark that will crimp exports. Debtor countries like the PIIGS will immediately be relieved of crushing debt through a devalued currency that will create an export boom at the price of high inflation in the short-term. See Iceland and Argentina from 2001 for examples.
As long as some countries may benefit from an exit, the eurozone is in danger of dissolution, and that is a realistic assessment, not a pessimistic one.
*My father and the fathers of my friends selflessly went to Europe to preserve the peace during the Cold War, so please forgive me if I become a bit jingoistic when discussing this topic.