by Elliott R. Morss

 May 3, 2012

When it comes to Eurozone solutions, it is interesting how different ideas take hold. The current idea is that if there is a big enough firewall, all will be well. This is the position of IMF head Lagarde and the strong Eurozone countries. So far, there is more than $1 trillion in the Euro firewall, and the IMF is trying to raise more. The US is at best luke-warm and has made no commitment. And just yesterday, Canadian Finance Minister Flaherty said “NO” firewall monies for the Eurozone.

So there is already $1 trillion available plus the $320 billion the IMF has already raised. How will more firewall funding end the Euro crisis? The table below provides a snapshot of the current economic situation in the Eurozone area.

Note the differences within the Euro area. Germany’s GDP is growing and it has a 5.5% unemployment rate. In the other countries listed, GDP is falling which means the unemployment rates of Spain (24.2%), Greece (19.4%) and Portugal (14.4%) will increase further.

Source: IMF

Spain and Greece have huge deficits. Greece and Italy have large government debts. And while Germany is running a current account surplus of 5.2%, the other countries are running large deficits.

Back to the firewall. How exactly will this firewall help eliminate these imbalances? And this in an area that must have the same monetary and fiscal policy for all its countries? It won’t. All the firewall can do is protect the banks.

As I have suggested earlier, these imbalances can only be eliminated if the Euro area is broken up and the countries go back to their own currencies.