That title was suggested by Jack Krupansky -- proprietor of Finaxyz -- in response to my previous post regarding the brouhaha over l'affair Eichel. Mathew Lynn at Bloomberg agrees, and joins in on what could be an extended round of new speculation about the future of the European monetary union:
Dutch and French voters have now spoken, delivering crushing defeats to the European Union's proposed new constitution. And the fallout will be immense.
The euro, the common currency shared by 12 EU nations, will weaken considerably as Europe enters a long period of political instability. Recriminations from the collapse of the constitution will be played out over months, not days.
And the economics of integration that have dominated Europe for the last 30 years have come to an end. Forget convergence. The big trend in the next few years will be Europe's economies going their own way, not with each other. In time, even the euro's survival might be called into question.
"The initial reaction might be relatively muted because the markets had already discounted `no' votes in both countries,'' said Stuart Thomson, a fixed-income strategist at Charles Stanley Sutherlands in Edinburgh. "What it does do is put a stop to any thoughts of fiscal integration, because that was really the next step of the process. Without that, it is difficult to see what is underpinning the euro.''...
Lynn's answer is clearly "not much":
First, the euro club may well now be closed and the three EU countries that opted to remain out -- Britain, Sweden and Denmark -- aren't likely to change their minds. Questions will be asked among the accession countries whether they should live up to their treaty obligations to join the euro. In the Czech Republic, that debate has already started. Governments will find it tough to sell the single currency to skeptical electorates.
Next, political leaders who have been triumphant in anti- constitution campaigns will be emboldened to take the next step. If you can defeat the constitution, you could pull out of the euro, as well. In politics, once a bandwagon gets rolling, people want to jump on board. Anyone investing in euro-area assets will have to ask themselves: "Am I happy to be holding this asset if, at some point, it reverts to an old national currency?'' Many investors will answer "no'' to that question.
Third, the creation of a single European economy is now unrealistic. Trade barriers have been broken down, and capital markets have been freed up, boosting all economies involved. Indeed, the gains from integration may well have allowed countries to ignore the declining competitiveness that results from unreformed labor markets and overgenerous welfare systems. Yet if no further steps toward integration are taken, those gains will be lost. Countries will have to reshape their own national economies if they are to grow again...
The question is whether such a currency can work without something that resembles a single government to back it up. It certainly wasn't Plan A. The trouble is, it may not turn out to be a workable Plan B, either.
UPDATE: I see that the Lynn article was also noticed over at A Few Euros More. The sister site, A Fistful of Euros, reports Latvians have bucked the trend and "approved the Constitution Treaty earlier this morning, by a huge majority. Somehow I don't think that will be enough.