July 25, 2012
The EZ crisis is once again on the march; Spain and Italy are under pressure. This column argues that policymakers are likely to fall back once again on a failed approach to avoid admitting past errors. Ultimately, however, EZ leaders will come around to the only way forward – the ECB underwriting both banks and sovereigns while additional controls on bad banking and bad fiscal governance are put in place.
Here we go again:
- Once again, pressure is mounting on the Eurozone’s public debts.
- Once again, markets and the media expect some dramatic flare-up followed by 'determined and comprehensive' policy measures.
- Once again, policymakers are bewildered by 'irrational' market reactions.
- Once again, technocrats – including many academics – are pushing for a deeper union that public opinion loathes.
This time it is Spain, soon to be followed by Italy. For more than one year, it was a foregone conclusion that both countries would follow the same path as Greece. The only question was which shoe would be the first to drop and when.