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Megan McArdle

Megan McArdle - Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and The Economist. She is currently on leave.
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Megan was born and raised on the Upper West Side of Manhattan, and yes, she does enjoy her lattes, as well as the occasional extra-dry skim-milk cappuccino. Her checkered work history includes three start-ups, four years as a technology project manager for a boutique consulting firm, a summer as an associate at an investment bank, and a year spent as sort of an executive copy girl for one of the disaster-recovery firms at Ground Zero � all before the age of 30.

While working at Ground Zero, Megan started Live From the WTC, a blog focused on economics, business, and cooking. She may or may not have been the first major economics blogger, depending on whether we are allowed to throw outlying variables such as Brad Delong out of the set. From there it was but a few steps down the slippery slope to freelance journalism. She has worked in various capacities for The Economist, where she wrote about economics and oversaw the founding of Free Exchange, the magazine's economics blog. She has also maintained her own blog, Asymmetrical Information, which moved to The Atlantic, along with its owner, in August 2007.

Megan holds a bachelor's degree in English literature from the University of Pennsylvania and an M.B.A. from the University of Chicago. After a lifetime as a New Yorker, she now resides in northwest Washington, D.C., where she is still trying to figure out what one does with an apartment larger than 400 square feet.

Save the Euro! (If You Can)

By Megan McArdle
Nov 15 2011, 4:21 PM ET Comment

A few days ago my colleague, Clive Crook, made a compelling case that however stupid it may have been to create the euro, now that they're in it, eurozone nations are now better off making the damn thing work:


What politicians have built, you might argue, politicians can unbuild. It isn't nearly so easy. When you put a currency union together, parities are fixed. When you take one apart, they are freed: Why else dismantle the union but to let exchange rates move? That obvious asymmetry has large consequences. Who would hold a deposit in an Italian bank if Italy were expected to abandon the euro? The new lira, in which those deposits might soon be denominated, would depreciate at the instant of its creation. The mere prospect would trigger a systemwide bank run.

This is to say nothing of the vast legal and technical complications that abandoning the euro would involve. When previous currency unions collapsed, they did so in far simpler financial times. The mechanics of reintroducing national currencies were tractable. They no longer are.

He's absolutely right--pulling the thing apart is going to be an utter disaster.  It's not clear how many countries could even remain in the eurozone--once it's established that members can exit and devalue, they'd always be vulnerable to runs.  And in the immediate aftermath, countries like France and Germany will have banking crises, while the periphery will have banking crises and brutal austerity as the countries with a primary deficit are forced to instantly close the gap.


And yet . . . 

Last summer, every time Europe would announce some new fund, package, or agreement, there would be a respite from the bond market mess for a few weeks, and then people would start to notice that they still hadn't actually guaranteed that Greek debt, and the rates would creep back up.

By early fall, the respite was lasting a week or less.  Soon it was measured in days.

Now it seems to be measured in hours.  We got a little breathing room after the Greek and Italian prime ministers resigned, and now once again, Italy is flirting with disastrous rates on its bonds, the kind that trigger full-on credit crisis.  And now French and Belgian bonds--and even those of the Netherlands--are under pressure.

What can these governments really do to staunch the bleeding?  

What can they do politically?  Can Germany and France really agree to a virtually open ended committment to Italy and Greece?  Can Greece and Italy really accept foreigners imposing austerity on them in order to save their own banking systems?  And is the austerity enforceable with such low compliance rates?

What can they do economically?  Is it even possible for the eurozone to credibly guarantee the credit of Italy and Spain, two giants whose bonds are getting whacked by the markets?  This would be like California getting a bailout from Texas and New York.

What can they do legally?  Is there time to create the EU legal structures necessary to make this work (and will everyone go along?)

The ECB might have a better shot.  But the ECB's resolute failure to act so far hints that either they don't want to step in, or feel they can't--that they haven't really got the legal authority.

So in theory, I agree that all-in-all, it's probably in everyone's interest to save the euro. The problem is, I'm not sure it's in everyone's capacity.


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