What Europe Really Needs

Fire in Florida

Fighting fires isn't going to resolve the crisis, says this think tank guru.

Let's see: euro zone officials have approved aid to Spain, a deal for Greece, and a bumper crop of new leaders seem more open to reforms. Nice, huh?

It's not enough for Zsolt Darvas, a research fellow at the European think tank Bruegel.

In an article entitled "Firefighting Has Limits," Darvas argues that "in the current largely intergovernmental setup there will always be some governments, parliaments or constitutional courts which will water down or block otherwise useful initiatives." Instead, he says, "the euro area needs an effective governance framework, which cannot be achieved without a much stronger political integration."

Darvas believes that euro zone countries will have to come together and issue euro bonds if they want to avert financial disaster.

"I continue to be convinced that the most palatable solution would be a limited Eurobond covering up to 60 percent of GDP, which should be phased in through complete pooling of new issuances, in which a member state can participate until its share in the stock of Eurobonds reaches 60 percent of its GDP."

Darvas recognizes that political pressures have so far made this kind of solution impossible. But he thinks that will inevitably change.

"The 'hoping for the best' strategy may not last long," he writes. "Its chances of success have diminished with the deteriorating economic outlook of the whole euro-area and the increasing market pressure on Italy."

Stay tuned.

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