But the weather's not bad

Brussels isn't too cheerful - I can count the smiling faces I saw yesterday on one hand.  Our group was one building away from a major summit-related event, but there was no indication of how things were going.  And none after:  no major news last night, no headlines today. 

Felix Salmon (via Krugman) blurts out the obvious -

Remember how Wolfgang Münchau said that the Euro zone had to get it right at this summit or it would collapse? Well, the Euro zone has most emphatically not got it right. Take any of the list of prescriptions of the minimum necessary right now — from Münchau, from Larry Summers [link], from Mohamed El-Erian — and the one thing that jumps out at you, especially in light of the most recent news, is that if you look at anybody’s list, there’s an enormous number of items which has zero chance of actually happening.

I now realize I'm attending the funeral of the dream of a single European currency.  As, one-by-one, nations have been peeled away, the political "center" of Europe has become smaller and smaller.  At the start of this year one might have spoken of a "core" of five or so countries, last week this core was down to just Germany and France.

With this final marginalization, it should now be fully apparent  that the Euro is the Deutschmark, and will be for as long as the Germans insist on both trade surpluses for themselves and fiscal austerity from their trade partners.  Other members of the Eurozone are just hitching a ride, the way Argentina did with the dollar.

That means that it will become politically impossible for some countries to stay in the Euro.  When you are in a debt deflation, some monetary adjustment really helps (Krugman has the chart, here).  The initial hit Argentina took was brutal, but once the currency adjustment had been made, things picked up nicely for them.



So, one by one, I suspect the mourners will start to head for their cars.  If I were Spain - a country that played by the rules but is still condemned to a decade of stagnation to please Teutonic conceits - I'd be heading there now (and slapping a tariff on German imports).

The other big news is that Belgium has a government now, so I guess they've got that going for them.