Is Angela Merkel’s Euro Strategy finished?

I think there are some good reasons to believe that something has got to give very soon. It looks like the wheels are coming off the Eurocrisis strategy of kicking the can down the road and throwing crisis countries into a recession/depression. I won’t repeat the reasons for why austerity is wrong – numerous authors have done this on SEJ over the last two years – but the current trends are dangerous. So what is going on?

First of all, nobody seems to believe that the Greek crisis has been resolved. On the contrary, Greece is now seen as in partial default and Greek bonds are no longer accepted as collateral at the ECB. Even if the rosy predictions of the Troika’s economic plan become reality – which is quite unlikely – the Greek debt burden in 2020 will still be unsustainable. So the current trajectory is very likely to lead nowhere.

Second, it is therefore unsurprising that there is growing scepticism – from all corners – that the plan will work. Angela Merkel lost her own majority in the Bundestag (which is quite significant). Maybe because she herself is not 100% sure anymore? At any rate there is a clear limit to how much more money can be channelled into current policies.

Third, the Irish government announced today that they will put the misguided fiscal compact to a referendum. Nat O’Connor has recently published a great analysis of why Ireland is quite likely to reject the ‘austerity treaty’.

It looks to me like the current policy direction is falling apart. The big problem is that there is currently no Plan B. Time to seriously work on one!