All over Europe officials are doing the same thing over and over again and expecting different results, writes Irwin Stelzer in the Wall Street Journal.
"Euroland politicians think they can (1) fight markets, (2) inflict infinite pain on voters in democratic countries, and (3) whip the profligate into line. They can do none of these" because markets set the borrowing rates and voters turn out politicians who push them too far.
That would prove, in my opinion, doubly illusory. First a new currency limited to the countries of southern Europe would not constitute an optimal currency area any more than the current eurozone, and the Eurosud "one size fits all" monetary policy would thus not prove adequate for anyone of the member countries. And second, it would raise all the problems of creating a new currency in the middle of a confidence crisis, a daunting task, much harder than a simple return to national currencies (for which national monetary institutions and central bank are still in place) that would soon have to be repeated later, when each country would have to turn back to its own former national currency. It would be much better to proceed directly to that second stage now, especially because the euro is again gaining strength relative to the dollar, losing all the benefits of its beginning of the year depreciation to more reasonable levels.
And meanwhile, interest differential between peripheral countries and Germany keep growing, reflecting the increasing risk of their government bonds.