Andrés Martinez moderated the lunch and shares his takeaway below.

When it comes to Europe, Liaquat Ahamed is a sanguine pessimist. He doesn’t see the European Monetary Union getting its house in order anytime soon, but he also doesn’t view the current situation as an existential crisis for the continent, or a trigger for a worldwide depression. Speaking a few days after (the latest) summit of European leaders agreed to a pact meant to shore up confidence in the eurozone, Ahamed noted that Europe always seems to do just enough to avoid a crisis.

This isn’t a case of remedying an imperfect union with “more Europe” as some post-summit spin suggested, but rather a determination by German Chancellor Angela Merkel that each country needs to stabilize its own finances, and must do so on its own. Germans, Ahamed reminded us, spent more than a trillion dollars reconstructing East Germany in the years since the fall of the Berlin Wall, and they are in no mood to spend another trillion to bail out peripheral European countries.

Germany’s success in the last two decades, improving the fiscal health of its public finances and the global competitiveness of its private sector (a success that involved some painful adjustments) adds to the current dissonance over what to do about the euro crisis. German policymakers feel that if they were able to get their house in order partly by embracing austerity, Italy and Greece should be able to do the same. Overlooked in this analogy, Ahamed pointed out, is the fact that Germany’s turnaround took place against a backdrop of robust global growth; the eurozone’s peripheral economies, meanwhile, are having to tighten their belts in a different environment, and without the flexibility of their own currency.   

Germany’s own experience leads that nation’s elites to be suspicious of Keynesian critics in the English-speaking world, and to view their Anglo-American counterparts as being too beholden to the vagaries of financial markets that helped cause the crisis in the first place.

At core, Ahamed believes that Europe’s monetary union was poorly conceived. The common market and free trade had benefited all Europeans, but it was never clear that a common currency was necessary to continue reaping benefits from European integration. And a common currency binding sovereign nations with labor markets and banking systems that remain very separate was always going to be problematic, especially when markets bought into the fiction of total integration for a time, allowing the Greek state and Irish banks to borrow at roughly the same low interest rates set for German debtors.

It’s hard to say whether the current crisis is one of solvency, as Ahamed believes that the amount of resources available to a country to meet its obligations is usually determined by political will. Markets are twitchy because it remains an open question whether Italians would be willing to devote 5 or so percent of their GDP for years to come to finance their restructured debt, not because anyone is really worried that the nation’s liabilities may exceed its assets. Britain, conversely, still can borrow at very low cost, despite a similarly bleak fiscal outlook, because no one questions its commitment to meet its obligations.

The long-term challenge for Europe, Ahamed believes, remains the fundamental question of growth. Will these economies grow at significant rates anytime soon? In the short term, however, Europe sorely could use a Ben Bernanke.

“Bernanke’s attitude in fighting the financial crisis in this country was: I’m saving the world, so sue me,” Ahamed said. In his view, fireman-in-chief Bernanke certainly violated the spirit, if not the letter, of laws dictating what the Federal Reserve can and can't do. "There is no one in Europe similarly empowered,” Ahamed said.
 
Still, he expects Europeans to muddle through, without any dramatic overnight withdrawals from the eurozone, or panics.

“If you went to the Germans and Italians and ask, knowing what you know now, would you still have gone for a single currency together, they would say no,” Ahamed said. It is, without a doubt, a bad marriage.

“But bad marriages can last a very long time," Ahamed concluded, "just look at northern and southern Italy.”