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Monday, May 10, 2010

The scary reality of the European debt crisis:

The new stability package suffers from the same problem as all the other ones the European Union has come up with in the months since the Greek crisis started rattling the markets last year: It tries to fix the symptoms, not the causes.

Greece has exposed deep structural problems within the euro. There is no mechanism to stop governments breaking the rules. There is no popular support for massive fiscal transfers between countries. The rules for the euro area have turned out to be unreliable. And there is no way to start stimulating economic growth again in the heavily indebted nations.

Those are the hard questions. Even 750 billion euros won’t get close to answering any of them.

So a repeat of all this drama in the next few months isn't out of the question. Can the EU restrain the debt-laden spending of Greece, Spain, Portugal, etc? And how close are France and the UK to a similar situation? Is anyone writing budgets in the US paying any attention? I'm guessing they'd rather learn the hard way.

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