Debt Reckoning for Europe

Saving the euro, say the sages of the global economy, requires radical steps. But, rather than binding treaties, fiscal union, or homogeneity of membership, what is needed are mechanisms that recognize and accommodate differences, rather than attempt to impose uniformity from above.

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.

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