The second question is whether the peripheral countries need to be bailed out. The answer here depends on whether or not they are simply facing short-term financing gaps or whether they are truly incapable of servicing their obligations. If it is the former, then the European Central Bank (ECB) or Germany should step in and provide the funding. If foreigners do so, the euro must strengthen against the dollar and with it the European trade deficit will automatically widen and growth prospects in Europe decline. If it is the latter, then debts in the periphery should be restructured and partially forgiven. Otherwise, there is absolutely no way for peripheral Europe to grow its way back into health. The idea that there is a role here for China or other foreign entities—to lend foolishly to countries to whom the ECB or Germany are too skeptical to do so—simply indicates how confused the whole euro project has become.
The second question is whether the peripheral countries need to be bailed out. The answer here depends on whether or not they are simply facing short-term financing gaps or whether they are truly incapable of servicing their obligations. If it is the former, then the European Central Bank (ECB) or Germany should step in and provide the funding. If foreigners do so, the euro must strengthen against the dollar and with it the European trade deficit will automatically widen and growth prospects in Europe decline. If it is the latter, then debts in the periphery should be restructured and partially forgiven. Otherwise, there is absolutely no way for peripheral Europe to grow its way back into health. The idea that there is a role here for China or other foreign entities—to lend foolishly to countries to whom the ECB or Germany are too skeptical to do so—simply indicates how confused the whole euro project has become.
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
