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Europe’s Last Taboos

Once again, the unthinkable has become necessary in Europe. But, while the pretense that Greece was solvent has been jettisoned, have the last taboos been broken, or will others – say, the reintroduction of a national currency or, conversely, the introduction of Eurobonds – fall as well?

BRUSSELS – You can always trust the Americans, Winston Churchill said, because in the end they will do the right thing, after they have exhausted all other possibilities. For the last 18 months, this has been Europe’s method for confronting its sovereign debt crisis as well: it has taken the necessary decisions, but always as a last resort.

Once again, on July 21, the eurozone’s leaders proclaimed that what was previously unthinkable was, in fact, necessary. They gave up the pretense that Greece is solvent; admitted that excessive interest rates could only make the problem worse; agreed to extend more and longer-term loans; called for private lenders to bear some of the burden; guaranteed that even if Greek government bonds are rated in selected default, Greek banks would not be cut off from access to liquidity; recognized the need to support economic growth; and agreed to broaden the scope of the European Financial Stability Facility, making it a more flexible tool for intervention.

For Germany, France, the European Central Bank, and other players, these about-faces have a cost in terms of reputation, political capital, and legal leeway. July’s decisions were sufficiently wide-ranging for everyone to be able to claim success. But the players will have to have to explain why red lines were crossed. All, no doubt, will claim that this is the last time.

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