The Eurozone’s dilemma is that the methods most likely to succeed in tackling its debt crisis, like large subsidies to troubled nations or Eurobonds, are political non-starters.
Equally problematic; the current combination of austerity, attempted structural reform, and bailouts is not succeeding.
So what would work? The Financial Time’s influential columnist Martin Wolf writes an editorial trying to answer that very question:
“I suggest the combination of two ideas: “insurance union” and “adjustment union”. By an insurance union, I mean one that provides temporary and targeted support for countries hit by big shocks. By an adjustment union, I mean one that ensures symmetrical adjustment to changes in circumstances, including, changes in financing.
Both are necessary and, together, they should be sufficient to ensure a workable union in the long run. These notions would have been unnecessary if original members had been far more similar: the minimal union would then have worked. But that is not what now exists. If the eurozone is to sustain its current membership, it needs a combination of insurance and adjustment.”
In order to succeed, Wolf believes the move towards this sort of union would need to be fast and effective. Up to now, Europe has been neither.