The big idea
Jean-Claude Juncker has one. George Soros has one. Every economic pundit has one. Even Hugo Dixon of Breakingviews has one. The euro zone isn’t lacking for sound advice and detailed agendas to help it resolve its debt crisis. Some are politically naive, others legally ingenious. All of them, though, give the misleading impression that the single currency can be saved by some collection of technical measures.
Not so. The would-be agenda-setters should learn, like Martha in the Biblical story, that it does no good to be “upset and worried about many things” when “only one is needed”. For the euro, that one thing is the political will to keep the euro zone and its financial institutions whole.
If the relevant authorities – and in this case, this mostly means France and Germany – can summon enough of that will, the challenges will wither away. Most debts can be paid: the countries in question are rich enough. Some debts may have to be forgiven: the creditor nations can afford to take the pain. Banks may need more capital: it can either be found or created. National governments must become more fiscally responsible: they’re doing that anyway.
Investors may say they are worried about undercapitalised banks, but no amount of capital will be enough to deal with a euro zone collapse and deficient authorities. Conversely, banks can run on negative equity, just as long as providers of funds are persuaded that the government and central bank will not let the institutions fail.
Of course, a fundamental political agreement would not prevent fierce arguments on just how to proceed. There are burdens to be shared and shunted, responsibilities to be taken and avoided and, yes, details to be sorted out. But if the will is there, meetings beginning with, “By midnight we will have an agreement strong enough to calm markets” will end at midnight – well, two in the morning, for this is Europe – with an agreement strong enough to calm markets.
Right now the will to keep the euro is only strong enough to keep muddling through. A stronger commitment would only come from a fundamental decision about what matters. The devil is not really in the details.