Bristol had a riot last Thursday night. I wasn’t there, although I’ve spoken to a number of people who were or who observed events from windows overlooking the action. The facts are still not entirely clear, but becoming clearer. As far as I can establish them they are:
Beyond this the facts are murky.
John Quiggin and I have a “piece”:http://www.foreignaffairs.com/articles/67761/henry-farrell-and-john-quiggin/how-to-save-the-euro-and-the-eu on the eurozone mess in the new issue of _Foreign Affairs._ The piece is subscriber-only, but we’re allowed to post it (in Web format) for six months or so on a personal or institutional website. Accordingly, the piece can be found below the fold. The piece was finished some weeks ago, but I think it holds up quite well.
Four things worth noting. First – I suspect we would put our argument that the politics are more important than the economics even more strongly in the light of current events. It looks as though demonstrations against the austerity agenda are beginning to take on a European dimension. In addition, a dimension of the politics that we did not discuss – the rise of nationalist resentments in countries that are on the giving rather than receiving end of loans-linked-to-brutalism – has come more obviously to the fore with the success of the True Finns in the recent election.
Second – Paul de Grauwe has a “new paper”:http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Discussion_papers/Governance-fragile-eurozone_s.pdf which points to a complementary mechanism through which monetary union plausibly damages political legitimacy at the national level (although his discussion is largely framed in terms of the economics).
bq. Once in a bad equilibrium, members of monetary union find it very difficult to use automatic budget stabilizers: A recession leads to higher government budget deficits; this in turn leads to distrust of markets in the capacity of governments to service their future debt, triggering a liquidity and solvency crisis; the latter then forces them to institute austerity programs in the midst of a recession.
Third: the Daniel Davies qualification. We refer to BIS data on bank holdings in the article – but as we specifically note (and as dsquared has pointed out in comments here and elsewhere), this data is biased by tax avoidance wheezes and similar. It is plausible to infer that e.g. German banks have some considerable exposure to PIIGS from the way that they are behaving, and the numbers are the best that there is, but they should be treated with caution.
Finally – the piece is written in the rhetorical style of US policy articles. This differs from that of blogposts and academic articles, in that it encourages emphatic claims rather than cautions and caveats, and self-assurance rather than social-scientific humility. Please read accordingly.