The U.S. has cast its lot with European federalization, solidifying the Atlanticist elite consensus that only true continental supranationalization can prevent a European (and soon thereafter American) economic collapse. Or so it seems. The U.S. Treasury’s Secretary’s shuttle diplomacy is having the intended effect of shoring up elite European opinion in favor of U.S.-style bailouts and quantitative easing. The only problem is that constitutional change is hard to come by when little countries in southeastern Europe can object.
I’ve said it before, and I’ll say it again. I’m agnostic on the question of whether the EU stays together or devolves into something smaller. Staying together will now require rapid and massive legal changes that would empower the EU to make taxation and debt policies that supersede national sovereignty, and would give the ECB the power to print money like the Fed. That outcome is much less probable than the uncontrolled dissolution of much of the eurozone.
The U.S. knows what’s at stake. The Treasury is very cognizant of those American money center banks that will be exposed to European sovereign bankruptcies. The Fed is very aware of the damage that the dollar can suffer if it must activate swaps with European banks that stand little chance of being repaid. I do believe a contraction in the eurozone to a core of “Holy Roman Euro” countries would create a defensible economic perimeter. I do not believe Europe’s political leadership has the skill to execute this devolution. They have instead gone for the all-or-nothing Hail Mary solution of continental unification. This is going to be a photo finish, as they say at the horse races.