I have questioned my own judgment and whether I am projecting my personal issues onto my analysis. But I don’t believe I am. A recent interview with Robert Rubin and Gillian Tett on Charlie Rose confirms my worst fears. Rubin, the former head of Goldman Sachs and Treasury Secretary under Clinton, characterized the probability that Europe will be able to navigate through the crisis as low and the consequences to the global financial system as catastrophic having second, third, and fourth order affects to the global economy.
I can't fully square his analysis, as he did say that European leaders would decide to integrate and form a fiscal union when staring into the abyss , and find a way to muddle through that will take years. But when pressed by Charlie, Rubin emphasized
that he had no conviction of this outcome only that the consequences of failure were so high that Europe would have to come together.
In this respect Rubin remains more optimistic than I do. This is not just a matter of shifting the burden of financial system indulgence to the tax payer as happened in the US in 2008. I see nothing from a game theory perspective to suggest there is mutually assured destruction in proportionatel measure across every nation. I don’t believe even France and Germany’s interests would be the same when faced with a catastrophic collapse of the financial system much less Greece, Spain, Italy Portugal, Ireland or Finland and Austria.
Adjustment requirements and burdens vary dramatically across the Euro zone. The burden of this adjustment process must fall on Germany if there is even a remote chance of success. If history is to be any guide, the last time an adjustment burden fell onerously on Germany we had the global catastrophe called World War Two.
Furthermore, I still see no evidence that fiscal unification will solve the underlying problems of structural unemployment across countries.