At this perilous juncture, there\’s not much to be gained from saying that monetary union was always a daft idea. Nor is it helpful to bemoan the fact that the architects of the single currency left the edifice half-finished when they provided Europe with a central bank but not a finance ministry. The question is whether Europe\’s policymakers can cope with the powers and institutions they currently have.
And to go on to provide a long answer.
Within the current rules there is no way out.
The ECB is not allowed to mop up bonds in the market at a discount (it can purchase new bonds, can take old as collateral) then cancel them. Countries are not allowed, under the current rules, to default. They can\’t leave the euro. There is no currently legal method for shipping a few hundred billion € from Germany to the periphery.
Finally, the ECB is not allowed to monetise the debt: print money until inflation makes it all go away.
There is no way out under the current rules: which means that at least one of the current rules will have to be broken.
The sensible way is default and exit from the euro for those who cannot deal with being in the euro. An attractive option is for Germany, Austria, Holland and perhaps bizarrely, Finland, to leave the euro themselves (although I have a feeling that the \”southern\” euro left would pretty quickly break up).
The not sensible way is to try and create that fiscal union that is necessary in such a single currency area. No, not just bewcause I\’m against there being a fiscal union: but because I doubt very much that there\’s actually time for this to happen in.
Similarly, monetising the debt would help but then we all know that this takes 12-18 months to work through the system: too long.
Starting from here, with the current legal structure, no, there is no way out.