Saving the Euro Will Mean Worse Choices for Europe

Charting the Disastrous Choices Ahead

Markets are reeling because Europe’s leaders have only offered up half-measures to resolve the crisis. Not until Brussels, Paris, and Berlin realize the fundamental flaw in their current approach — a lack of real political and economic integration across the eurozone — will there be an end in sight.

The EU has tried repeatedly, and failed repeatedly, to calm the markets. That is not for a lack of solutions at hand. Consider three: make the European Central Bank (ECB) a lender of last resort, spread exposure by pooling eurozone debt via eurobonds, or massively increase the European Financial Stability Facility (EFSF) and start bailing out weak economies in earnest.

Any of those solutions would reinstate confidence and lead to stability, but each is easier said than done. The first and arguably best solution — in which the ECB simply buys debt without limits from Italy or any other member state in trouble — is legally questionable under the EU treaty; what’s more, Berlin rejects the idea, citing the bank’s limited mandate, and says it could spark inflation. The creation of eurobonds is a political nonstarter for northern European states distrustful of their profligate, crisis-prone counterparts in the south. And eurozone leaders have already tried — unsuccessfully — to create a bigger EFSF on the cheap by asking the BRIC countries to buy in.

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