New York Times
November 29, 2011
Each day Europe inches closer to a full economic meltdown, but Chancellor Angela Merkel of Germany is still blocking what is needed: a real bailout of Europe’s weakest economies by their richer neighbors or the European Central Bank.
Mrs. Merkel and her team have had more than fair warning of the disaster to come, including a possible breakup of the euro. And it should be utterly clear that no country — including Germany — is immune.
On Tuesday, Italy had to offer a yield of nearly 8 percent to get investors to buy its debt — a level that forced Greece, Portugal and Ireland to seek bailouts. The crisis is now spreading to France, which is at risk of losing its triple-A rating. European banks are dumping government debt as fast as they can and hoarding cash. And, last week, when Germany tried to sell a new round of bonds, investors were willing to buy only half of the planned issue.
The markets have clearly figured out that a meltdown of the euro would impose enormous costs on Europe’s most solid economy, too. But German officials are still insisting that their profligate neighbors need to pay for their sinful ways — and that Germany’s virtuous taxpayers will not be made to foot the bill. Until recently, European leaders argued that they could quell the crisis with an underfinanced rescue fund and stiff austerity policies imposed on borrowers to re-establish their creditworthiness. Investors are unpersuaded, and the crisis keeps spreading. Italy owes $2.5 trillion. The $350 billion left in the fund isn’t enough to cover its financing needs, which run to $530 billion next year alone.