THE BASIS POINT

How To Save The Euro

The Economist laid out a plan to save the euro this week, saying that any other alternatives are far worse. Below is a summary of their four-point plan and links to their full stories this week. Both are must-reads. So far Europe has only done #2 of the Economist’s four point plan, as announced last week. Long way to go. Which is why U.S. rates, while going higher on last week’s news of bank liquidity measures, are unlikely to spike near-term.

A rescue must do four things fast. First, it must make clear which of Europe’s governments are deemed illiquid and which are insolvent, giving unlimited backing to the solvent governments but restructuring the debt of those that can never repay it. Second, it has to shore up Europe’s banks to ensure they can withstand a sovereign default. Third, it needs to shift the euro zone’s macroeconomic policy from its obsession with budget-cutting towards an agenda for growth. And finally, it must start the process of designing a new system to stop such a mess ever being created again.

-Europe’s Currency Crisis: How To Save The Euro (Economist)
-The Costs Of Breakup: After The Fall (Economist)