Saving the euro: Bound towards a tense future

Since the beginning of the European debt crisis, most economists have focused on the potential consequences of a breakup of the euro zone. It’s easy to understand why. Although unlikely, a euro-zone breakup would be a potentially cataclysmic event that would leave the world economy in tatters. Economist Milton Friedman famously predicted the euro zone would fail when confronted with its first systemic crisis because it was a fair-weather construction.  

A FEW weeks ago I blogged on a proposal by Oxford University’s John Muellbauer for euro bonds (to which he kindly replied with interesting comments, see here). Now seems a good time to return to the subject: the European Commission has just released a Green Paper on euro bonds. For your reading pleasure, here are some key quotes:  

Citing the latest report on "Debt and Deleveraging" by the McKinsey Global Institute, Ambrose Evans-Pritchard proclaims America overcomes the debt crisis as Britain sinks deeper into the swamp.

SOMERSET, N.J. – A top U.S. Federal Reserve official waded into the sticky debate over global currency wars on Friday, warning that such beggar-thy-neighbor monetary policies would only hurt world trade and the economies that were involved. Philadelphia Federal Reserve Bank President Charles Plosser said central banks in many countries are adopting policies, often under pressure from governments, to control their currencies, calling it an unhealthy phenomenon.

Martin Hutchinson submits: The latest development in the U.S. debt crisis came yesterday (Monday) when Standard & Poor's finally downgraded its outlook for U.S.