The situation you see unfolding in Europe is one I’ve written about since the inception of the Euro—that it can’t work because fixed monetary unions without sovereign government overlaps invariably run into the problems you’re having right now in Europe.

The Euro countries had agreed to solve that problem when the Euro was created, actually before the Euro was created, by saying none will run budget deficits greater than 3% a year and none will exceed accumulated budget deficits of 60% deficit relative to GDP. Well, there is no member of the European Union right now with a budget deficit below 3%. Even Germany is above it. And some of the sovereigns and Ireland, although not in the Union, have deficits up in the range of 12-15% of GDP, much like the U.S. and England.

The U.S. has sovereignty so we can deal with it. When you have that kind of disparity in fiscal activity and you don’t have free movement across borders of population because of language and custom and so forth, it’s very hard for a currency to last. And what they are really dealing with right now is that problem. If Europe was really a country, the central government would work it out in its parliament, the way we do in the U.S. They would subsidize Greece, the same way we subsidized the victims of Katrina, the victims of hurricanes, snowstorms and floods. We routinely subsidize events that are geographically concentrated with no huge debate about why we are shipping our money to those other citizens.

It’s a problem, when you don’t vote and you have no voice in the problem but you are expected to be the solution. I still think the Euro will break. It’s made it at least two years longer than I thought it would, and I think it’s just a matter of time before it breaks. Historically, monetary unions without sovereignty always break.

What is the impact to the world’s economy if the Euro breaks?  I don’t think it would be a big negative to the economy. It would be a big negative to the financial system temporarily figuring out what it meant, but not to the world’s economy.