Only hope for Europe's economy is to face facts about bank debt
The policy menu for last night's meal in Brussels was enough to turn the stomachs of most hardline German politicians and officials. Eurobonds, stimulus loans, an easing of spending cuts for the weakest: they are all liable to give monetary and fiscal hawks of Europe's pillar economy serious indigestion.
And that's a good thing. All those proposals – forced on the table by the new French President François Hollande – would certainly be preferable to the bone-headed austerity diet that Europe is presently struggling with.
Yet the truth is that, even with Mr Hollande's intervention, the kind of radical policies needed to bring this existential eurozone crisis to an end were not – and are still not – being discussed by Europe's leaders.
What would that transformative menu look like? Well the first course would be an acknowledgement by the self-righteous leaders of northern Europe that, with the sole exception of Greece, the struggling eurozone states are in deep financial trouble now, not because their governments were financially undisciplined in the boom years, but because the private sectors of those countries were.
There were huge destructive lending bubbles in Ireland and Spain, financed by local banks. And these local banks were, in turn, financed by giant banks in France, Germany and the UK. When it came to idiotic lending, European financial institutions were all in it together.
The second course, which would follow naturally from the first, would be an acknowledgement that much of the money that pumped up those lending bubbles in the European periphery is not coming back. Bad debt needs to be recognised and banks across Europe – both in weaker countries and stronger ones – must be recapitalised without any further delay. That means being straight with taxpayers across Europe and telling them that they need to stump up for another round of bank bailouts.
The dessert course for Germany will be a commitment to boost its own domestic demand, by cutting taxes and boosting public spending. And this needs to be combined with an extended period of higher inflation in the largest eurozone economy. Without this, Germany's weaker neighbours will never be able to increase their exports, pay down debt and make their labour markets competitive within the eurozone.
And if Europe's leaders are not prepared to swallow that? Well, in that case they should really ask the waiter for the bill – for the break-up of the single currency.