After the Bazooka.


Now (Eurozone) governments are struggling to cope with the aftermath. But, in insisting that there will be no defaults, they are protecting the financial sector from its stupidity. The people of indebted countries are expected to pay, instead. Is this going to prove an acceptable bargain, in the absence of a return to growth in stricken countries? Hardly.

So where do we go from here? We must start by recognising that all we have done is buy a little time. In the eurozone’s first real crisis, governments have been driven to desperate attempts to prevent defaults, as finance has dried up. Now they confront big choices.

The first and most fundamental is whether to go towards greater integration or towards disintegration. The answer has to be the former. Of course, it is possible to imagine a return to national currencies. But this would cause the financial system to implode, since the relations between assets and liabilities now in euros would become so uncertain. There would be massive capital flight into the banks of those countries deemed safe.

-- Martin Wolf, unnerved, in the FT.