Back in July 2015 I reminded Alt-M readers of a paper I presented at the 2012 Mont Pelerin Society meetings in Prague, as part of a session in which Otmar Issing, one of the euro’s architects, also took part. As I remarked in that last post, although Mr. Issing “put a much more favorable spin on the euro’s prospects for survival” than I did, I argued at the time that our apparent disagreement boiled down to the fact that while he chose to regard “the merest heartbeat from Frankfurt” as proof of the euro’s vitality, I considered it “for all intents and purposes already brain-dead.”
The gist of my argument was that the viability of the euro depended on strict enforcement of the 1997 Stability and Growth Pact. However, when both France and Germany were allowed to violate it in 2003, the pact ceased to be credible. “That change meant, in effect, that either the ECB’s independence or the no bailout commitment or both would have to give way, as both have indeed done.” That stage having been reached, I argued, the euro’s eventual disintegration was all but certain.
I’m bringing this up yet again because Central Banking Journal recently published a remarkable (but, unfortunately, gated) interview with Mr. Issing in which he acknowledges that the euro is indeed falling apart. What’s more, he agrees that the euro’s fate was sealed when “Germany and France violated the pact in 2003, delivering a fatal blow to the pact from which it has never recovered.”