Warren Mosler cites several articles showing that European leaders are still in denial over what needs to be done in Europe. The problem in Europe is still quite simple. Because there is no floating currency there is a natural competitive imbalance between trade deficit and trade surplus nations. This exists in the USA as well among the states, but it doesn’t result in periodic solvency crises because the Federal government disburses 20% of state funds directly to the states each year. Of course, that mechanism doesn’t exist in Europe even though the ECB is currently avoiding the worst case scenario by allowing budgets to be filled without default. And the austerity measures aren’t helping this process – they’re creating a positive feedback loop as we continue to see in Greece and their now monthly “rescues”.
I’ve long said that Europe needs to go fully federalized and quickly into the direction of a US of Europe. I still think that’s inevitable. The big question mark is how big that US of E will be and whether they’re going to let these peripheral nations be part of what is increasingly becoming an unsustainable relationship (as is). My guess is that Germany would love to toss out the dead wood, but they can’t do that just yet without blowing up their own banks. So round and round we go. Where she stops nobody knows….