More EU Crisis

Europe on the Brink - Megan McArdle

I haven't been blogging much about Europe because I felt like I was mostly repeating myself. Europe is not an optimal currency zone. It opted for monetary union without the fiscal or labor market integration that make America's sprawling currency zone work. So far, the various governments have failed to mount a really credible coordinated response. I don't see how the thing can hold together, except that Jesus, it will be hell if it all falls apart.

But it's probably worth interrupting your regularly scheduled unemployment-and-kitchen-blogging to point out that it all really seems to be coming to a head:

In an interview with IMF advisor Robert Shapiro, the bailout expert has pretty much said what, once again, is on everyone's mind: "If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system. We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serrious than the crisis in 2008.... What we don't know the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems."