Many economists are clear on what needs to be done for the eurozone: transition the European bond market from bonds issued by single governments into eurobonds issued by the whole euro area together, pooling risks and rewards. This would work because the eurozone as a whole has less debt in proportion to GDP (88%) than the US or Japan.
It would mean, necessarily, pooling all kinds of economic and fiscal policy-making too. Angela Merkel is in favor of fiscal union, but says it won't work to introduce eurobonds first, before full fiscal union is in place.
Unfortunately the clock is ticking. There is no time left for Germans to worry about lax Southern Europeans failing to pull their weight after Germany has bailed them out. Everyone agrees that the impending collapse of the euro would cause a terrible recession with global repercussions.
Why is it so frightening for Europeans to transfer national sovereignty to a larger Union? People in Europe normally cite cultural differences, national identities, languages, and memories of war as obstacles. But the time has probably come when the choice is really between uniting and sinking.
The first Americans had a similar dilemma. After freeing themselves from British rule, the States created a weak union under the Articles of Confederation. It didn't work. The central government had little power to collect taxes and a low budget from the States. Trade difficulties were enormous and the government had difficulty representing the Union abroad. The government printed money, but it had no value.
So in 1789, after eight years of muddling through, the States decided to adopted a new Constitution giving real powers to the central government.
With all its flaws, the federal union of the States has made it possible to share risks and rewards on a larger scale. It is time for Europeans to swallow national pride and move in this direction.
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