By Griffin W. Huschke, Mayme and Herb Frank Research Fellow
A lot of people have a low opinion of the World Economic Forum in Davos, Switzerland for pretty good reasons, and despite all the hype, there isn’t usually a lot of new information that comes out of the meeting. This year, however, the annual Masters of the Universe pilgrimage has yielded some especially already-well-known pieces of information that are getting bandied around simply because men in suits are talking about them. Top honors go to Robert E. Diamond, Junior, the CEO of the British banking giant Barclay’s who brazenly declared the obvious when he stated that “the question of the euro and if the euro is going to stay together is last year’s issue and off the table.”
It appears that the cool kids at Davos have gone retro—geopolitics is in, and hating on the Euro is sooo out.
It obviously depends on what “question” you’re asking of the euro (“wait, where are the one euro bills?”), and the common currency has some major issues to contend with in the near future. European countries are still figuring out how to deal with the aftereffects of the financial crisis, it may well be decades before the fallout from the recession is resolved. As Paul Krugmen expertly points out, there are serious, deep seeded concerns about the Euro that must be addressed before the monetary union will function on all cylinders.
But questioning if the Euro is going to “stay together” makes Mr. Diamond sound more like Al Green than the head of one of the largest financial intuitions in the world. As mentioned briefly before, there really isn’t a foreseeable way a country could leave the eurozone and without triggering a devastating economic chain reaction that would affect every economy in the world, and leave the exiting country’s economy in smoldering ruins. In the words of UC Berkley Professor Eichengreen, “The decision to join the euro area is effectively irreversible. However attractive the rhetoric of defection is for populist politicians, exit is effectively impossible . . .”
Eichengreen’s sentiments were echoed by every member of a high-level panel on the euro held at the School of International Service last year. It is extremely difficult for anyone to envision any parliament in Europe ditching the Euro–the economic and political costs would simply be too high. As a result, there hasn’t been a serious debate in any European country on leaving the common market since the Great Recession began.
So, in essence, Mr. Diamond trying to calm the non-existent worries about the underpinnings of the Euro, which weren’t really under debate in the first place.
Thanks, Davos. Can’t wait to see what you come up with next year.