The single currency is a Ponzi scheme on steroids. The Eurozone has become hugely bloated and muscle-bound with debt. It’s a highly unstable – and unsustainable – situation. Yet many are advocating debt mutualisation across the Eurozone and a single fiscal policy. It won’t work (despite what The Economist says). All the sophisticated arguments ignore the simple fact that it’s Euro Ponzi to the power of 17.
The heart of the problem is the exponential increase in distance with degrees of separation. As the degrees ratchet up, so does the implicit belief that someone else will pay. At a supra-national level, across an entire squabbling continent, the distance might as well be measured in light years. By the time the “strongest” member of the currency zone, at the bottom of the pyramid, is crushed by the weight of the 16 above it, the implosion of the Euro would be the financial equivalent of colliding galaxies.
Pension people should understand the psychological effects of degrees of separation better than most. We debate the implications of being on our own in the world of defined contribution schemes. We lament the passing of defined benefit schemes under which members, without a thought, assumed that other people (employers and shareholders) were picking up the greater part of the tab. Witness the howls of protest at changes to the state pension age; the difficulty people have in grasping that the distant bill payer of their retirement, the taxpayer, is in fact themselves (and still somehow hope that other taxpayers will pay a greater share). Most intractable of all, public sector pensions – for the unions and members, it seems to have the greatest mental distance of all.
When distance is close, the degree of separation slight, things look very different. To use a personal example, many years ago I borrowed some money from my Grandma to buy a car. I dare say she wouldn’t have minded if I’d never repaid a penny but who would want to betray their Grandma’s trust? I repaid her in half the agreed time. It’s this sense of closeness, of responsibility – to someone you know and can relate to – that makes things work like, say, a cooperative or Collective DC. Or a single currency zone.
Except that no such thing exists across the 17 countries. Indeed, no such thing exists even within most of them or else there would be no debt mountain, no people spending longer in retirement than in work even while their younger countrymen and women will be afforded no such obscene luxury. Let us hope that Angela Merkel sees the evidence others are strenuously trying to deny, musters a might amount of mettle and, irrespective of the pain it will cause now, takes away the debt steroids instead of inflating this Ponzi scheme by 17 further degrees of separation.