Northern and southern Europe are different places

Thursday, 29 December, 2011

Some of the best commentary on Europe and the euro this year has come from the keyboard of Walter Russell Mead. This week’s column is titled Europe Is Still Hip Deep In The Bad Stuff and here’s the money quote:

“But if Europe dodged the charge of an angry bear last month, it is still hopelessly lost in the woods. The proposal for a new, souped up fiscal union treaty has bogged down in the usual horsetrading, favor swapping and generally ineffective European legislative process. More profoundly, the core cultural problem at the heart of the economic problem remains: northern and southern Europe are different places that need different rules, and the euro requires them to live and play as one.”

How bad is it? Well, last week, the European Central Bank provided €489 billion in three-year loans to cash-strapped European banks, and the same banks then turned around and deposited a record €452 billion with the ECB. This shows that the European interbank lending market is crippled because banks would rather earn the paltry 0.25 percent rate that the ECB pays, rather than running the risk of lending to other banks at much higher interest rates.

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