Wednesday, June 13, 2012
Save Europe’s Marriage With a Trial Separation
June 13, 2012
The euro is not a fundamentally bad idea. It just needs a timeout while some critical kinks are worked out.
Europe is at least two economies: a northern tier we might call Hanseatica and a southern one we will call Mediterranea. The Hanseatic economy is primarily commercial and industrial, and relies on exports. The Mediterranean economy remains more pastoral and agricultural, and relies on debt for its purchases of manufactured goods from the north.
The divide, rooted in topography, climate and culture, is diminishing, but is still in place. This simple distinction underwrites an imbalance -- one that the shared currency magnifies and worsens.
The euro is undervalued as a Hanseatic currency and overvalued as a Mediterranean one. Northern exports to the south are therefore unnaturally cheap, as are the charges on the credit extended to southerners who are buying the goods. Hanseatic credit balances build up in parallel with Mediterranean debt. In time, the southerners seem like deadbeats to northerners, while northerners look like neo-colonialists to the south. Resentments and acrimony ensue.
We have seen this before. Colonial North America was to London and south Britain much what Mediterranea is to Hanseatica today -- largely pre-industrial and dependent on the credit extended by the seller. Eventually, the Mason-Dixon line roughly split the U.S. in a manner not unlike the division in Europe today: an agricultural south and a more commercial, industrial north.