Way too little has been done in 20 years to counter the Eurozone losing its foreign exchange adjustment tool.

Sir, Martin Wolf writes: “Andreas Kluth wrote in Handelsblatt Global this month: ‘A common currency was supposed to unite Europeans. Instead, it increasingly divides them.’ He is right” “The Italian challenge to the eurozone” June 20. 

Of course he is!In 1998, on the eve of the Euro, in an Op-ed titled “Burning the bridges in Europe” I wrote: 

“The Dollar is backed by a solidly unified political entity, i.e. the United States of America. The Euro, on the other hand, seems to be aimed at creating unity and cohesion. It is not the result of these.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive. High unemployment will not be confronted with a devaluation of the currency which reduces the real value of salaries in an indirect manner, but rather with a direct and open reduction of salaries or with an increase of emigration to areas offering better possibilities.”

So clearly “All of this was predicted” Yes, but why has so little been done about it? Why have EU technocrats instead wasted their time on so many other minutiae?

What I did not foresee though, really because I had no idea of it, was that with the risk weighted capital requirements for banks, that which assigned a risk weight of 0% to sovereigns and 100% to citizens, fatal distortions in the allocation of bank credit were introduced, causing “high level of public debt” and making it all so much harder on the eurozone.

@PerKurowski

Sir, is it not high time FT abandons its “Après nous le deluge" mode?

Sir, of the letters I wrote and which you published, before I was censored for the given reason that I wrote too many letters, that which gets the most attention in my blog is the one titled “Long-term benefits of a hard landing”.

In that letter I argued Why not try to go for a big immediate adjustment and get it over with? … This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.”

How sad it is that almost eight years later, after having basically wasted QE’s, Paul Serfaty still finds a valid reason to end his letter with “Bite the bullet. Reprice the assets. Write off the unpayable debt. Smite the unwary. Start again with a new confidence that there is an upside”, “QE monster has regulators and markets alike transfixed” January 22.

Sir, look back at what your columnists have written over the last eight years, and you will find that most of it has to do with kicking the can down the road, by means of QEs, fiscal deficits and much other… all having us climb ever higher, that mountain of excessive liquidity, unsafe excessive price of “safe assets” and excessive sovereign debt, from which we must come down from, sooner or later.

Frankly Sir, is it not high time FT abandons its “Après nous le deluge” mode?

It is indeed hard to find the right moment for sacrifices

Sir in “Private behaviour will shape our path to fiscal stability” November 4, Martin Wolf tells us that it “would have been a monstrous blunder” to lower the private sector surplus through an adjustment that destroyed private income, but also, that not to do so, is a case of “adjustment postponed” which leads to a surge in leverage and new bubbles. I guess it is all about balancing the need for finding the right moment to quit smoking with the fact that once in your grave there is no such need... and so the closer to the grave the higher the incentives for a postponement.

Is this not really a case of this generation of baby-boomers against next generation of baby-boomers?