The Secret Committee to Save the Euro

The weekend WSJ has a fascinating, lengthy piece of extended investigative financial journalism – “On the Secret Committee to Save the Euro, a Dangerous Divide.” Congratulations to WSJ reporters Marcus Walker, Charles Forelle, and Brian Blackstone for outstanding research and writing.  Here’s a bit from the opening; if you have access to the Journal, and follow anything related to these issues, this is an impressive piece of reportage.

Two months after Lehman Brothers collapsed in the fall of 2008, a small group of European leaders set up a secret task force—one so secret that they dubbed it “the group that doesn’t exist.”  Its mission: Devise a plan to head off a default by a country in the 16-nation euro zone.

When Greece ran into trouble a year later, the conclave, whose existence has never before been reported, had yet to agree on a strategy. In a prelude to a cantankerous public debate that would later delay Europe’s response to the euro-zone debt crisis until the eleventh hour, the task force struggled to surmount broad disagreement over whether and how the euro zone should rescue one of its own. It never found the answer.

A Wall Street Journal investigation, based on dozens of interviews with officials from around the EU, reveals that the divisions that bedeviled the task force pushed the currency union perilously close to collapse.

I asked in a post a week or so ago why the default of a sovereign euro-zone member on its euro-denominated debt was threatening to the currency itself in principle, as a structural currency matter (leaving aside all issues related to things like the holders of the debt being largely other euro-zone banks, etc.).  The most interesting answers people gave mirrored what this article suggests as to why the eurozone might have broken apart:  euro-denominated bonds are one thing.  It’s another to have euro-denominated bonds issued by a euro-zone member that not only uses the currency, but which uses it as part of not merely a currency union, but also a deeper monetary, customs, trade, labor, etc. union.  That is, as part of a union in nearly everything except fiscal union.   The contingent issuance of debt in a currency is very different from its issuance by members within a zone.  (I don’t think, however, that it is a completely satisfactory answer, for the reason pointed out by various commenters to that earlier post – that this is even more true of states in the United States.)