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The EU could break up and desert the Euro. That’s one idea that’s been floated a lot. Spain exit (Spexit), Greece exit (Grexit), or a north-south split that would create a united Spain, Portugal, Italy, Greece, (and a few others) into a south Euro (Seuro) union, with Italy leading, and leave the rest of the EU as the core are floating on the winds of bloviators. (Including moi.)

North-South Euro split

North-South Euro split South shown in Yellow.

Italy might take that deal if it could do well for Italy’s elites. And it probably would.

The EU can also move to a federal system with direct elections, similar to the United States. That would allow the income redistribution that the United States does.

Wealth transfer from the rich nations of the EU would allow the sort-of-basket-case nations of Europe to be able to buy again. (Greece, Spain, Portugal). It would draw down the coffers of the rich nations like Germany, because redistribution through taxes requires net transfer from the rich to the poor. Very Christian, that!

So when you give to the poor, do not sound a trumpet before you, as the hypocrites do in the synagogues and in the streets, so that they may be honored by men. Truly I say to you, they have their reward in full. But when you give to the poor, do not let your left hand know what your right hand is doing, so that your giving will be in secret…

The history of the current EU mess is that Germany used its dominance of the ECB to ensure huge loans went out to the periphery nations of the EU so that the periphery nations could and would buy German products. That debt held by the periphery nations is the positive balances in German banks. So wealth transfer’s not very palatable to Germany. They see it as “their money” much like most successful US citizens see their bank account positive balance as “their money” and the national debt as “those people’s problem!”

But, of course, all money in the modern world is debt money. Yes, dear. You can run, but you can’t stop spending it. Nor can you stop piling it up in your bank account.

Germans also pay their damn taxes. Italians weasel out of their damn taxes. Germany runs well and has good industrial systems humming along. Italy runs god knows how, and its families have an average net worth double that of German families. Why? Because Italians weasel out of their taxes. Their debt problem is roughly equal to the collective difference between Italian family net worth and German family net worth.

In addition, the nations of Europe are facing the demographic cliff of the baby boom. But the rich nations are benefiting from the problems of the periphery because they are getting the best workers (mostly young) from Spain, Portugal, Greece, etc. as immigrants. Germany and France are reluctant to let go of that. Lose the cream of Spain’s, Portugal’s and Greece’s young people? Also Ireland’s and Italy’s? Come now. What politician is going to tell the strongest voting group (old people vote) that to help out those deadbeats of the south, Germany has to starve its elderly retirees?

And what bureaucrat would let go of the bridle of extortion/blackmail he has on the deadbeat nations in the form of intimate knowledge of exactly what crimes were committed by the politicians running Spain, Portugal and Greece? (And to a lesser extent, Ireland.) With that sort of stranglehold over those nations, until the people of the debtor nations kick the SOBs out and there is no more stranglehold, the option of breakup is not very enticing now, is it? Not to the average bureaucrat it isn’t.

Put these factors together with the German fear of runaway inflation that makes them bow to the gods of austerity, and you have a stalemate. Germany won’t allow the EU to break up, split, or go federal until there is no other choice. France won’t want to go that direction on principle — perhaps never. It’s still true that French don’t like Germans and vice versa.

I remember walking across a bridge in Germany into France. There was shopping. My German hosts seemed put off by my wanting to walk across the river. I asked them if they did. They said never. The also said that French people didn’t walk across into Germany. It was very rare. Something about German army taking over France or something a while ago. Fusses folks.

Whatever happens, it’s not going to be easy. The politics of doing anythng at all are nearly impossible.

The EU is a bureaucracy. That means that like any bureaucracy, it will do the easiest thing possible now. As long as it kicks the can down the road, buys them more time, bureaucrats will be happy.

What’s the easy thing here? QE.

I predict QE by November.

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