Bailouts, Naturally

The Centre for Economics and Business Research (CEBR), a well-respected UK think-tank, has officially forecast a break-up of the eurozone in the next five years, probably by 2013.[1] The view is not particularly controversial – UK MPs were screaming it across the aisles yesterday.  What was remarkable in the CEBR news release was that it believes that Germany, the paymaster of the current bailout, will not be willing to keep paying for the successive rounds of bailouts in the future. Why not?

Rather than being an exception, the bailout is the natural state of affairs. West Germany is bailing out East Germany. London and South-East England are bailing out the rest of the UK. In Italy, the north is bailing out the south. If we narrow our focus down to individual regions we often see that urban areas bail out the rural, and commercial zones bail out the residential. Even within a household, spouses bail each other out and parents bail out their kids.  So what is it about bailouts does the CEBR see as unacceptable or unsustainable?

The only difference between the eurozone bailout and the others listed above is that people do not see the zone as ‘us’. For many, Greece is definitely categorised as ‘them’. Rather than stoking the flames of a damaging and costly breakup of the eurozone it might be useful to simply make an effort to manage these perceptions, because bailouts are not going away anytime soon.

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