We've asked Johan Van Overtveldt, author of The End of the Euro, to check in again about the ongoing euro crisis afflicting Europe. Here's his latest commentary:
Tapes of discussions between top-level leaders at the Anglo Irish Bank (AIB) at the time of the bank’s collapse at the end of 2008, which were recently revealed by the Independent newspaper in Ireland, offer sobering insight into that dramatic moment. The AIB top brass are heard joking about lying to the Irish government regarding the true extent of the bank’s losses. Their rationale was that once the government got involved in the bank’s rescue, there would be no way back. They also make fun of the prospect that at the end of the day, in Europe the rich Germans will always be there to pick up the bill. One of the AIB people even starts singing the Nazi version of “Deutschland über alles.”
Current Irish Prime Minister Enda Kenny promises a full investigation to reveal the truth behind AIB’s collapse. What these tapes undeniably prove, though, is that Europe—and more specifically the Eurozone—are suffering intolerable forms of “moral hazard,” the term economists use to describe how people’s behavior can become very nasty when they don’t have to suffer the consequences of their actions.
Whether we’re talking about Irish bankers or Greek or Italian politicians, by now everyone is convinced that the European and German elites have decided that nobody will be allowed to leave the Eurozone. Hence, anybody getting into difficulties knows that he can bluff and lie and cheat, because nobody is prepared to go to the final sanction of expulsion. The only way out of this massively disturbing moral hazard is to transfer important chunks of national authority to the European level. And there is very little willingness to do this, especially in the larger countries of the European Union. Either Europeans take this big leap forward or they will face a never-ending crisis situation within their monetary union.