New Deutsche Mark Is on the Horizon
Barely two weeks have passed since the euro crisis conceded the spotlight, yet Spain (10-year Spanish sovereign yield passed 7.5% as of early Monday morning -- new records are expected by the time this gets published) and Greece (open official talk of no bailout payments and Grexit, as reported by Bloomberg) are back again.
In retrospect, I have persistently underestimated the resolve of the people in peripheral eurozone to stay in since I started calling for euro dissolution in 2010. The Greek people in particular have suffered a great deal for a long time even though, from the purely economic perspective, it's clearly better for them to leave, devalue and default. They've had multiple chances to do so via numerous elections and referendums; yet they clearly chose to pay the heavy price for staying in every time.
Spain has shown similar resolve. Sure, there are a few protests here and there; but so far the overall balance is clearly tilted toward staying.
This forced me to broaden my thinking beyond economics. The euro experiment is apparently not just something dreamed up by the elites, as some cynical commentators would say; rather it has some deep popular support. In other words, the euro crisis is not just a political issue, but one that's rooted in the streets.
This realization gradually changed my outlook on the euro crisis over the past few months. If the people in peripheral eurozone are determined to stay, there's no way others can force them out.
Sure, Greek debt may default; but it's been in default for a long time in every way except for some technicality.
At this point, Greek default would be mostly a nonevent, and separate from the euro issue. Suppose the post-default Greece shows no sign of wanting to leave, what then?
As throughout the history of the European continent since the fall of the Frankish Empire, it always comes down to the two giants, France and Germany (or variations thereof). The euro was mostly a French idea to begin with; Germany was at best a suspicious partner who wanted to reunite with East Germany for any price.
The French calculation is that they would surely be the dominant force in the United States of Europa due to the country's relative overall independence from otherwise complete U.S. domination.