End of game? Don’t bet on it

by Charles Wyplosz

Vox
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.

But once again, we will see limited policy decisions that will temporarily loosen the pressure while leaving the crisis untreated.

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.

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