Why do I say that with such “conviction”? Easy, just look at the US. If in the US, free from all the “treaty shackles” and German “meanness” that restrain the EZ, the situation is almost exactly the same, with the country unable to find its “way out”, what else can be expected from the much more constrained EZ?
Looking at the pictures, if they´re not labeled it would be the equivalent of a “trick exam question” to be asked to identify which set represents the US and which the EZ (excluding Germany).
Now take a look at Germany´s NGDP and ECB interest rate setting.
As Luis Arroyo from Ilusíon Monetaria is fond of saying: “The euro does badly when Germany does well. And does worse when Germany, triumphant, tries to impose its rules. Unsustainable”.
It appears that the ECB was mostly looking at Germany when meeting to set rates!
And then the view from people who know what they are saying. From Kevin O´Rourke:
With this in mind, the most obvious point about the recent summit is that the “fiscal stability union” that it proposed is nothing of the sort. Rather than creating an inter-regional insurance mechanism involving counter-cyclical transfers, the version on offer would constitutionalize pro-cyclical adjustment in recession-hit countries, with no countervailing measures to boost demand elsewhere in the eurozone. Describing this as a “fiscal union,” as some have done, constitutes a near-Orwellian abuse of language.
Which is reproduced by Krugman who ends with:
Maybe it was always thus, but the relentless wrong-headedness of the Europeans, their insistence on seeing their crisis as something it isn’t, and responding with actions that deepen the real crisis, has been a wonder to behold. In the 1930s policy makers had the excuse of ignorance; there was nobody to explain what was happening. Now, their actions amount to a willful disregard of Econ 101.
No, they didn´t have the excuse of ignorance. During the whole decade of the 1920´s Gustav Cassel (and Ralph Hawtrey) had been saying exactly what would happen (and did) if gold kept being “idolized”. From Doug Irwin´s abstract:
Unlike Keynes or Hayek, Cassel explained both how a country could get into a depression (deflation due to tight monetary policies) and how it could get out of one (monetary expansion).