A “Merkel Plan” for Europe

It is becoming possible, in political terms, to say that Europe's debtors have taken their punishment and have made their economies more competitive. What is now holding back these and other European economies is weak demand in the eurozone as a whole, which is why a modern version of the Marshall Plan is needed.

LONDON – Ever since Europe’s economic crisis erupted more than four years ago, politicians and pundits have clamored for a grand solution, often invoking the example of America’s postwar Marshall Plan, which, starting in 1948, helped to rebuild Western Europe’s shattered, debt-ridden economies. But the political moment has never been ripe. That could be about to change.

Europe’s situation today bears some similarities to the 1940s. Burdened by the public debts resulting from past mistakes, eurozone governments know what they need to do but not how to do it. They mistrust each other too much to collaborate. Meanwhile, demand in most of the European Union is weak, ruling out the economic growth needed to repay debts and offer hope to the 25 million unemployed.

Parochial suspicion has been the main obstacle to a grand solution. No country’s taxpayers have wanted to feel that they are paying for others’ excesses: the single currency did not impose shared responsibility. So creditor countries, led by Germany, have sought to do the minimum necessary to keep the euro alive, while debtors have grumbled impotently about Germany’s insistence on fiscal austerity.

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