Debt Reckoning for Europe

BOSTON – Saving the euro, say the sages of the global economy, requires radical steps.& The OECD recently called for a large European firewall – a mega-bailout fund for troubled governments and banks. Others argue for integrating taxes and borrowing in the eurozone and shedding weak members, like Greece, that struggle with a strong currency.&

But tall firewalls, fiscal union, or homogeneity of membership are neither necessary nor desirable.& What is needed are mechanisms that recognize and accommodate differences, rather than new top-down efforts to impose uniformity.

All governments, even Germany’s, tend to spend more than they tax, and to hide shortfalls using accounting sleight-of-hand. Treaties alone do not induce fiscal virtue. The expectation that all eurozone countries would obey rules aimed at capping their budget deficits was the common currency’s foundational fantasy.