Can the Eurozone Survive? Not in Its Current Form Says PIMCO; Mish Response

Echoing statements I have made many times, PIMCO says the single currency area must become a "United States of Europe" in order to secure its future.

Please consider Eurozone can't survive in current form, says PIMCO.

The eurozone is "untenable" in its current form and cannot survive unless countries are prepared to cede sovereignty and become a "United States of Europe", the manager of the world's biggest bond fund has warned.

The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together.

Persistently weak growth in the eurozone had led to voter unrest and the rise of populist parties such as Podemos in Spain, Syriza in Greece, and Front National in France, said PIMCO managing directors Andrew Bosomworth and Mike Amey.

"The lesson from history is that the status quo we have now is not a tenable structure," said Mr Bosomworth. "There's no historical precedent that this sort of structure, which is centralised monetary policy, decentralised fiscal policy, can last over multiple decades."

PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro.

"[Persistently low growth] manifests itself in a lack of support in the common currency, so then it leads to the rise to power of political parties that want to end it," said Mr Bosomworth.

PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro.

"[Persistently low growth] manifests itself in a lack of support in the common currency, so then it leads to the rise to power of political parties that want to end it," said Mr Bosomworth.

Nothing New 

I certainly agree the eurozone cannot survive unless it becomes the "United States of Europe".

There is absolutely nothing new in this announcement other than who said it. I have been talking about this for years.

Can the Eurozone Survive? 

It won't because it cannot. Germany's constitution prohibits a fiscal union and transfer mechanism. If that changes, I will change my tune.

And that's also something I have also said.

In addition to Germany's constitution, I believe Finland and other states would object. Heck, look at all the animosity over Greece. Look at work rules and retirement ages in France.

For a "United States of Europe" to work, countless issues would need to be worked out. And to top it off, eurozone rules are such that every nation would have to ratify the changes. What's the likelihood of that?

Bottom Line

If the Eurozone cannot survive without becoming the "United States of Europe", it cannot survive at all.

For detailed discussion on this topic, please see From ZIRP to NIRP: Virtues of Germany vs. the Vices of Greece; What About "Speece" and Gold? 

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com