The latest “euro saving” news is that the Greek referendum has now been scrapped. That’s good news, I guess. The referendum was never a wise move in the first place. The problem is, none of this fixes what's causing the problems in Europe. Greece is just a sideshow now. The Europeans have fixed absolutely nothing in terms of resolving the root cause of the crisis so we should fully expect the turmoil to persist into 2012 unless something larger is done.
Unfortunately, if this little episode has proven anything, it’s that there’s essentially no political cohesion in Europe. I’d like to think that these nations are somewhat close to being able to agree on some form of full fiscal union, but there’s clearly still a very deep political divide across the region. If they can’t even agree on how to deal with one of the smallest members of the EMU, how can we expect them to come together in some form of fiscal union to fix this? Nonetheless, I still think it’s the only real fix here that doesn’t involve scrapping the whole euro project – something that I think is totally unreasonable and counterproductive to what Europe has already achieved over the last 20 years.
The bottom line: Greece is still on board with the German plan. And that means more austerity, more economic pain, no budget fix, continuing turmoil, and likely a bigger crisis later this year or in 2012 as the crisis grows even hotter. Even more frightening, this episode proves that the true fix is even further out of reach than previously thought. That virtually guarantees continuing turmoil. It’s the crisis that won’t go away because the leaders in Europe can’t come to grips with the idea that they’re all Europeans now. And the lack of unity is increasing the risk that the whole thing craters in front of them.