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The above is the title of an excellent article in the Financial Times by Otmar Issing. Issing is president of the Centre for Financial Studies and a former member of the European Central Bank’s executive board.

Issing makes several points:

  1. Bailing out Greece would start a domino effect process, leading to rescues in more countries.
  2. Resentment among the peoples of the economically strong countries would rip the EU apart.
  3. A monetary union without a political union is problematic.
  4. Low interest rates available to countries such as Greece because of the EU were squandered in profligation.
  5. Despite past transgressions, fiscal responsibility can be restored, even for Greece.

Okay, I'll make two confessions. My dictionary doesn't have the word "profligation" and Issing doesn't use it. Using my dictionary would have resulted in the word "profligateness". I like the flow of the invented word better.

Also, Issing didn't actually say anything like point #5. That is simply an implication I took from what he actually wrote. You'll have to read the article yourself to decide if I am reading between the lines correctly.

Here are the concluding two paragraphs of the Issing article:

This moment is a turning point for Emu, and for the future of Europe. Most observers point to the high risks – which cannot be denied. However, any crisis also presents an opportunity. This is a big chance – probably the last for Greece, and others – to adapt fully to a regime of stable money and solid public finances.

For Emu, the crisis represents a final test of whether such an institutional arrangement – a monetary union without a political union – is viable for an extended period of time. Lax monitoring and compromises when it comes to observing implementation of rules have to stop. Emu is a club of states with firm rules accepted by entrants. These rules must not be changed ex-post. Governments should not forget what they promised their citizens when they gave up their national currencies.

Societe Generale SA strategist Albert Edwards and Harvard University Professor Martin Feldstein disagree with my take away from Issing, according to a Bloomberg article by Alexis Xydias. Edwards is predicting a break up of the EMU (European Monetary Union) and Feldstein reportedly said the monetary union “isn’t working” in its current form. Another quote in the same article by Tommaso Padoa-Shioppa, a former European Central Bank executive board member and Italian finance minister indicated there was no possibility of a partition of the Euro area.

While all this is going on, the number of short positions against the Euro has increased by 50% on the CME (Chicago Mercantile Exchange) in the past three weeks, with almost 3/4 of that increase occurring last week.

It may be crunch time in the Euro zone, but sometimes it seems that the crunch is happening with all the speed and friction of two colliding tectonic plates. You know what happens when the two plates finally slip? Ask people who live along the St Andreas fault, in Port au Prince or in Anchorage.

Disclosure: No positions.