A US-style solution for Europe

For the euro to survive, the region's public debt must be written down and decentralised US-style fiscal discipline should be adopted to ensure history does not repeat itself.

Three years into the eurozone crisis public debts are still rising, including in the three countries currently subject to rescue programs. More countries – Spain and Italy for sure, France quite possibly – are inching towards rescues. These nations have three things in common:

– They share the common currency;
– Their economies are in recession; and
– They have adopted austerity policies.

They are also trapped in a ‘circle of impossibilities’.

Circle of impossibilities’

If they are to remain in the eurozone, these nations must exit recession. This, in turn, will require an end to austerity policies. But given their massive indebtedness, they cannot embrace expansionary fiscal policies; even abandoning austerity may be impossible. One solution would be more lending from other eurozone governments, but in today’s climate such lending would surely come with austerity conditions that would defeat the whole purpose.
So how do we break out of this circle of impossibilities?

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