Ken Rogoff has responded to Simon Wren-Lewis and yours truly, and I’m glad to see that he’s taking the analytical questions we raised seriously. I guess it won’t surprise readers, however, to learn that I don’t find the response adequate.

Let me make four points.

1. Since Rogoff seems to have decided to mention my excessive pessimism about euro survival as often as possible, I think it’s important to be clear about what I got wrong. As far as I can tell, I was right about the straight economics: internal devaluation has proved every bit as difficult and costly as I (and many others) warned it would. What has come as a surprise is the politics — the incredible willingness of southern European countries to suffer mass unemployment, year after year, rather than break ranks. The economic framework I was using looks fine, but clearly I misjudged the political landscape.

2. On the economic question at hand, Rogoff seems to be playing bait and switch. Wren-Lewis and I both asked why, exactly, a country like Britain should fear a Greek-style loss of confidence. Rogoff, however, spends most of his piece arguing that Britain would, in fact, be hurt by a euro collapse. Of course it would. So? This doesn’t even seem relevant to Rogoff’s own argument for austerity policies: British austerity might be “insurance” against loss of confidence, but it makes no difference either way to the probability of disaster in Europe. What’s going on here?

3. It also seems to me that Rogoff has shifted his own argument. In the original piece, it was very straightforward: foreign investors would lose confidence, sending interest rates soaring, which would cause economic contraction. I think, though it’s hard to tell, that he has now dropped that story, replacing it with a fairly amorphous assertion that simple models miss the true nature of risk. OK, I guess, but I do think it’s important to note that Rogoff’s original assertion was that it was all very simple.

4. Finally, on Wren-Lewis’s point more than mine: Wren-Lewis pointed out that a country like Britain could easily respond to a run on its bonds via quantitative easing. Rogoff says no, because this would undermine its credibility. I’m being a bit flip here, but as I read this we start with a credibility argument; when there turns out to be an easy way to deal with that problem, it’s rejected because that would undermine credibility. I keep looking for something fundamental, but right now it looks like turtles all the way down.

Just to come back to my original point: I find it quite remarkable that nobody has managed to produce a coherent model to justify the seemingly simple story that anyone, even a country that borrows in its own currency, can suddenly turn into Greece. Again, show me the model!