A few comments:

rz:

 

  German economists are crazy and the economists advising our government are the worst of the bunch.

No objection from this quarter :)
As you've noted elsewhere, some Germans have exposed it as such (but if it's written in an English paper, even the FT, does it really count?).

rz:

 

    The French economic weakness is a myth.

No objection either, but would the hypothetical new French currency not devalue against the German one? I doubt the respective economic strengths (and the more dynamic French demography) would be enough to prevent an appreciation of the eventual new DM, if only for Deutschmark fetishism in a lot of financial circles. After all, if policies were mostly driven by facts, we would be in a very different situation, wouldn't we? Let's not forget that markets can remain irrational longer than we can remain solvent...

rz:

 

  the real income of Germans would rise. they could go cheaper on Holidays, they could by cheaper goods from the rest of Europe and so on.

As good as it would be for German people, especially those with the lowest incomes, an over-appreciated currency would be a catastrophe for a German economy entirely oriented towards exports: a lot of companies would be hurt, not necessarily the big conglomerates who already have facilities outside of Germany, but the Mittelstand certainly. "Real income" with respect to what? Imported goods? Precisely what an export minded leadership wants to limit at all costs...

Lastly, I don't think the "credible threat to leave the Euro" is the only option for other EZ countries: never mind the fact that, barring a Le Pen elected French president, it is totally unlikely to happen, what with the current EU leaders enthralled with the austerian fairy tale. As you rightly pointed out, threats do not work well, especially with a German leadership (and a German population to a large extent) living in the parallel Swabian housewife universe. Grandstanding never works in the EU, as a British PM is finding out.

Another option is to quietly refuse to apply the full austerity straitjacket. There will be of course a lot of furor, and possibly scathing editorials from German EU commissioners (oh, wait...), but, in the finest EU tradition, no frontal crisis: just long winded horse trading negotiations ending up into some "new consensus", the details of which being difficult to predict from here.

Lastly, there's the - not entirely unthinkable - possibility that the first country to pull the metaphorical trigger won't be Greece or Portugal or Italy, or even France: Germany might well beat them all to the punch. Especially if the EU commission fails to strictly enforce full-metal austerity from Lisbon to Tallin and the cries of currency debasement and Weimar inflation upon us grow increasingly louder in Germany. This would actually provide a perfect vindication to the "lazy Southerners who cannot be trusted" theme

To quote Migeru:

Migeru:

 

 I'm pinning my hopes on AfD.

The "summer series" 'End of the line for the Euro', a political fiction published by Le Monde over the summer of 2011, might even end up to be true after all :-)

by Bernard on Sun Nov 30th, 2014 at 01:12:34 PM EST

Also, you seem to misunderstand Migeru's an my use of the word "threat". It does not mean you grandstand and threaten. I specifically mentioned that a balanced position was to not make the Euro an absolute decision. At the moment parties in power have it as an absolute yes, whatever the cost, so indeed Germany can feel that there is not threat of breakup.
Simply saying the obvious, that while you would much rather stay in, you'll also take the situation in consideration, creates a threat, but no grandstanding.

It's like in chess - it's for the opponent to realise that there is a threat. You don't play your move stating "I commit to taking on c7 unless you physically restrain me".

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

and now for the radical stuff Solving the economic depression in the eurozone by issuing "quasi" monies (pdf).

The idea here is to issue your own currency in parallel to the Euro. You do it basically by paying in somthing similar to IOUs.  

Thanks to the irrepressible and telegenic Salvini, leaving the Euro has become the top campaign call for the Lega (don't call in Lega Nord any more, the 'PADANIA" newspaper shut down yesterday).

The Lega has jumped 10% in the polls in the last three months. Theirs is a simple formula: show up near a refugee or Rom camp and tap into the growing racism, adding further incendiary rhetoric and urging the public to blame immigrants for all the woes inflicted by fallacious economic ideologies.

This has propelled him into the 'favourite son' position of Berlusconi (until recently occupied by wunderkind Renzi).

Salvini is also new BFF of Marine le Pen, so they have each others' backs too.

This bodes ill for immigrants but also for the Troika. Salvini is no economics whiz however and is unclear about how the transition back to the Lira would play out. It's all about political power for him, and I trust him no more than Renzi with regard to the fate of the country. Opportunism rules...

Like Marine le Pen (and Farage), he has found a 'lucky wave' of populist sentiment to surf. I shudder to think of any of them attaining more political power, but if they are blunt instrument needed to break the Troika's hold they they have my cagy support on that score.

Meanwhile I expect a surge of interest for the MV5* (who also would resort to canning the Euro but only if the threat didn't work) as they streamline their mediatic presence and spread their message, the only one in my opinion that carries genuine hope for the shake-up necessary to save this country for further perdition. Their platform is the only one sufficiently radical to upend the staus quo and give it a decisive, - dare I hope even conclusive - boot in the derriere.

This could only happen if Beppe took a step back into commentary, as his narrative had jumped the tracks and was barreling nowhere. I suggested this back in the spring, now half a year has been mostly wasted, providing a vacuum into which Salvini has tidily side-stepped. The Movement's lack of decisional clarity has cost them many voters who have drifted into the Lega's vortex meanwhile, or given up hope or interest in politics, perhaps understandably!

Meanwhile Renzi's obeisance to the Troika's every whim is rapidly plunging Italy further down the slope to default, thanks in part to Beppe's egomania. Thank FSM he has finally realised this...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

Mit der Eurokrise hat sich dieser Konsens relativiert. In Deutschland sind Regierung und Opposition noch weitestgehend für den Euro. In Frankreich ist das formell auch so. Nur der Front National ist dort dagegen.

Anders in Italien. Dort sind jetzt alle Oppositionsparteien gegen den Euro. Zunächst hat das nichts zu bedeuten. Die italienischen Sozialdemokraten unter ihrem Chef Matteo Renzi haben eine große Mehrheit im Parlament. Und sie genießen eine große, wenn auch nicht mehr überwältigende Zustimmung in der Bevölkerung. Aber in Demokratien kommen Oppositionen irgendwann einmal an die Regierung. Und dann ist es natürlich wichtig zu wissen, ob eine solche Regierung ihre Anti-Euro-Politik umsetzen würde.

The Euro does not work and does not work for 3 reasons:

i) conjectural (mismanagement) I suppose there is a consensus on this site on this. but also

ii) structural. There is no such thing as a EU as a unified cultural block. Even if the management was sound, the differences among the nations would make it a complicated endeavour and there would be discordance because there are different ways of doing things that are hard-wired culturally

iii) philosophical. I prefer a world where there is diversity of ways to deal with problems. A unified Europe (even one with "good" intentions) would be a step in the opposite direction.

So, in theory, I think this should stop. As an aside, if people do not agree with points 2 and 3, I think we do agree on point 1.

In practice:

There is a massive amount of interdependency and (e.g. in the case of Portugal) food and energy dependency. There are 3 practical options for exit:

1. A country wants to exit and the EU supports it. This would be against the prevailing ideology (left or right) and the interests of the financial oligarchy. Therefore this is not possible. If this was possible, exit would be complicated, but not impossible. Notice that countries like the US (with their financial oligarchy also invested in globalization) would not come to help also. Not realistic

2. A country wants to exit and the EU is neutral. This would be very complicated (with debt restructuring) but possible. In several cases this would be feasible because while there might be food/energy dependency the trade balance is not that bad (e.g. in Portugal with austerity it is actually going net positive). This is politically unlikely (due to the ideological and oligarchical investment in globalization), but not impossible.

3. A country wants to exit and the EU will do whatever in its power to make life miserable. Even if you have a neutral trade, if you are dependent on your neighbours for most of your food and energy, you are in a very fragile position (as extreme trade barriers could be lifted). I think that if a small country goes in this direction, it will be in this situation as there would be strong interests to demonstrate its failures.

Rock, meet hard place.

... as Joan Robinson once declared, the only thing worse than working as a wage slave is to be unemployed. Just ask the Italians, who now have the highest unemployment rate since they started keeping records. Thanks to the EMU and German fiscal rectitude!

As my colleague Pavlina Tcherneva points out, for every social problem except unemployment, progressives advocate a direct solution.

How do you solve the problem of lack of access to healthcare? The progressive advocates single payer.

(Not, of course, Obamacare, which is just a scheme to turn more of your income over to Wall Street's insurance industry.)

Hunger? Food stamps.

Homelessness? Public housing.

Old age poverty? Social Security.

But Unemployment?

More vacations. Pay the employed not to work.

Unemployment compensation. Pay the unemployed not to work.

Or, more ludicrously, BIG (basic income guarantee). Pay everyone not to work.

What is missing? Jobs. The unemployed want jobs. But progressives will not give them jobs.

fter just a year since the previous downgrade, Standard and Poor's yesterday reduced Italy's rating from BBB to BBB- and it's now expected that there'll be growth in GDP of just 0.2% in 2015, as opposed to 1.1% which was the expectation until yesterday. Thus even S&P is following in the foot steps of many institutions, organisations and commercial banks that have recently made significant changes to their predictions in relation to Italy's growth. And yet Renzi had been saying up until a few months ago that thanks to his charitable hand-out of 80 Euro, the government estimates for GDP growth of 0.8% in 2014 would even be too low. Now, however, we know that we are in a situation that the technical people call a "triple-dip recession", with expectations of seeing negative growth for 2014 as well. How is it possible that all the econometric models continue to fail unperturbed as they have been predicting a recovery for the last seven years? It's clear that up until now, it's been a matter of hope for a recovery with the aim of negating the evidence and that is that the issues of growth and employment are directly connected to the single currency.

...

We are in Draghi`s hands: if he manages to charge forward and if he can impose QE on public bonds by the first half of next year, then he will manage to put off for a short time, the certainty of Italy's collapse. Otherwise, the year 2015 will be remembered as the year of the exit from the Euro and also default. There's no other solution and even S&P has understood that today.