Ireland has started to issue its own Euros, or rather counterfeit its own Euros, since it has no legal authority to issue Euros – not that anyone worries about legal authority these days.
If any one country of Europe can get away with issuing Euros, then the political benefit is captured by the one country issuing Euros, while the inflationary effect is experience by all of Europe. This guarantees over issue of Euros.
The proposed cure for this problem is more central authority, a United States of Europe – but there was already central authority to stop people from issuing their own Euros. Irish issue of Euros is illegal, but the European Central Bank lacks the balls to say so, and forming a United States Of Europe would not give the European central bank a testosterone infusion.
The two most powerful democratically elected people in Europe, Ms. Merkel and Mr. Sarkozy, have, under pressure from their voters, prescribed a solution: The Deauville pact.
The Deauville pact if implemented would mean that Greece and Ireland would go broke. Irishmen would go the ATM, attempt to withdraw cash from their bank accounts, and no cash would come out. Pensions and doles issued by the Irish and Greek governments would bounce – that is to say, solvent banks would turn them down, and while insolvent banks would cheerfully accept them, the insolvent banks would be unable to give cash for them.
The European Central Bank is, however, reluctant to go along with this plan. But if they are reluctant to stop people spending Euros they do not have, or unable to stop people spending Euros they do not have, Euros will, in the end, be worthless.
The more solvent countries of Europe could save themselves from this shipwreck by issuing their own currencies – franks and marks. Of course, that would be easier if they actually were solvent. That Europe is drifting into a system that makes financial collapse unavoidable is more of a symptom than a cause. Genuinely solvent nations would unhesitatingly cut the wastrels off without a penny, to teach them thrift, which is what the the Deauville pact proposed. The problem is that every bureaucrat fears that if one government goes broke, people will doubt the next. Big spending governments fear to let bigger spending governments go broke, lest their own solvency be doubted.
The Deauville pact was more the politicians of France and Germany assuring each other and the voters that they were indeed solvent and could act in the macho manner that solvent enterprises can act, than it was any real intent to act.