You bet, say Edward at A Fistful of Euros (entering my list of favorite weblogs with a bullet) and Martin Wolf at the Financial Times (available by subscription only). From AFOE:
A right royal row is brewing at the ECB. Basically the old guard theorists of the ’one size fits all’ monetary policy are being challenged by more pragmatic observers of day to day realities...
In fact [European Central Bank chief economist Ottmar] Issing is really digging in. He provocatively gave this One Size Fits All speech on 20 May. His conclusions were as follows:
“Let me conclude with a citation. On the eve of the changeover, I wrote a commentary on diversity and monetary policy in the euro area. To the question whether a single one-size monetary policy could fit all parties involved – be they national entities, social partners or economic actors – my answer was: “One size must fit all”...
Obviously you have to ask whether Issing in now losing his grip on reality. Can one size fit all is a legitimate question, one size must fit all is not an adequate response, and one size *does* fit all seems to reflect a distorted vision of reality to say the least.
Meanwhile, Wolf concentrates on Italy, the member of the eurozone that he views as having the worst fit of all:
A number of economists argue that the European Central Bank is distorting the market by treating all eurozone sovereign liabilities as equally riskless. Even if the ECB does this only at the short end, the knowledge that it does so will affect the entire yield curve. The solution, suggest Willem Buiter of the London School of Economics and Ann Sibert of Birkbeck, in an unpublished note, is for the ECB to accept government debt as collateral only at market-determined discounts.
Whether this idea would make a big difference to prices in the market is unknowable. What is knowable, however, is that it makes little sense for anyone to treat the debt of all eurozone members as equivalent. Because of its size and status as a founder member of the European Union, Italy's predicament is the most significant. It is also highly revealing. What has happened since entry, as I noted last week ("A more dynamic eurozone is a necessity", May 17 2005), is the precise opposite of what was needed: declining productivity performance, deteriorating competitiveness, faltering growth and weakening fiscal discipline.
In its latest survey of Italy, the Organisation for Economic Co-operation and Development remarks: "It is somewhat ironic that Emu membership, by allowing sharply lower interest and exchange rates may, in effect, have relaxed the perceived need for structural adjustments on both supply and fiscal sides." It may be ironic, but it is also human - and potentially calamitous.
Here's an interesting picture, that doesn't exactly prove the point, but does illustrate the effect of the union on Italian risk premia:
Wolf's personal angel of moderation prompts this...
I do not wish to be misunderstood. So let me be clear. I am not saying that the eurozone will disintegrate, or that Italy is doomed to Argentina's fate either. I am saying that tough choices and tougher times do lie ahead. Only with radical structural reforms, the most disciplined wage behaviour and the greatest possible fiscal rigour can a country in Italy's predicament sustain stability and return to healthy growth.
... which is only a partial antidote to this:
Let us think the unthinkable: could the eurozone disintegrate? The answer is yes. Disappearance of the zone as a whole seems hugely unlikely, so long as the commitment to the European project survives. But the exit of one (or more) members, a sovereign default or both is not at all inconceivable...
Monetary union was not the easy option. It was the tough alternative to an inflationary bonfire of Italy's debt. If the country fails to rise to the challenge it confronts, a default or even a forced withdrawal from the eurozone is perfectly conceivable. Italy has willed the ends. It must now will the means.
UPDATE: I see that AFOE noticed the Martin Wolf article also.