As the UK's Guardian newspaper notes, the action earlier this week to provide fistfuls of dollars will not save the Euro.
So what is being envisioned as the 'right' solution?
The plan that is starting to emerge was hinted at on Thursday by the following comment by Mario Draghi, the new chief of the European Central Bank (ECB):
“The ECB’s monetary policy is constantly guided by the goal of maintaining price stability in the euro area over the medium term – and this applies to price stability in both directions.”
The key phrase here is “in both directions,” referring to both inflation and deflation. Based on this and numerous economists’ remarks about the danger of deflation in the eurozone, it’s now thought that Draghi is about to reverse himself and agree to a substantially looser monetary policy for the ECB than he’s previous said he’d allow. Thus, the emerging plan to save the euro is roughly as follows:
• Draghi’s ECB will lower interest rates.
• On Monday, French President Nicolas Sarkozy and German Chancellor Angela Merkel will announce a plan to amend the Lisbon treaty to create a “fiscal union,” giving Brussels (and Berlin) much tighter fiscal controls on eurozone countries.
• In return, Draghi will agree to allow the ECB to “print” trillions of euros of new money to purchase toxic bonds from Italy and Spain, in order to bail them out.
• The entire package will be announced with great fanfare on December 9.
There are substantial risks with the 'substantially looser monetary policy for the ECB' that is rumored to be a key part of the Eurozone solution. Printing large numbers of Euros and using these to acquire the bonds of the nations that are at the most risk still does nothing to address the core problem behind the fiscal challenges of those nations - the fact that they cannot afford their excessive entitlement programs and deficit spending. In fact, these countries are pretty much so far gone, they can't afford the taxes that they would need to impose to balance their budgets either.
A solution that provides a far stronger EU 'fiscal union' / centralized government control at the EU level of the national finances of all or selected members of the EU also is not a real fix to the core problems. How are the Greeks or Spaniards or Irish going to react to the fact that bureaucrats at Brussels or Strasbourg will have the ultimate control over how, when, and where their governments will spend, provide benefits / services, and tax policy? How long are the citizens of productive or fiscal responsible nations going to want to send their treasure / expend their efforts to 'reward' the irresponsible and unproductive?
Princeton University Economics Professor, Nobel laureate, NY Times editorial writer, Enron Economic Advisor, and all purpose progressive nitwit, Paul Krugman, argues that like in the US, the problems in the Eurozone stem from far too little government spending. Apparently, Keynesian economic theory shares a similar fate with that of Jacobinism and Communism, the failures that we've seen of those theories do not result from fundamental problems and failures within the theories, but in the insufficient and incomplete implementations of those theories in the real world.
Like this 'ism's' of the extreme left, Keynesianism only works in theory and not in the real world outside of the laboratory environment.
Increasing government spending will not result in these troubled countries from moving beyond the effects of their deficit spending. Instead, this irresponsible action will only accelerate the death spiral.
Perhaps this is the ultimate goal being advocated.