David Blanchflower believes that Europe’s dithering has been fatal to the EMU. In an interview with Bloomberg Television, he said that Europe had an opportunity to get ahead of the sovereign debt crisis when it was just Greece. But now he believes they have run out of option as contagion has spread. “It really feels this week like panic has set in.”
Blanchflower also says (correctly I believe) that the eurozone is not about to dissolve straight away. The question is “how do they get to Monday”, he says. The question about contagion really hinges on the ECB at this point. The EFSF is too small to deal with either Spain or Italy effectively. But the ECB is an unreliable provider of liquidity. And political cohesion is all but gone in the euro zone. This makes a double dip recession and a worsening debt outlook all but certain.
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Blanchflower is a former Bank of England Monetary Policy Committee member and currently a Professor of Economics at Dartmouth College.