Ignatius on European Finances

Daniel Gross laid out some of the opportunities and pitfalls for the U.S. in the European debt crisis. (See my previous post.) David Ignatius writes about the roots of the panic, and the key statement may be this: "Investors keep pounding Europe in part because they don't yet see the mechanisms that will enforce discipline."

Ignatius asserts, with the backing of Italian President Napolitano, that much of the problem is that Europe has a single currency, the Euro, in use by 16 countries with independent fiscal policies. The need to enforce consistent policies to support the Euro and make the market-wide economy work confronts the nationalist feelings of the people.

We saw this in the Greek riots, in the signs condemning the IMF and the EU. Well, Greece joined the Euro because they Greeks thought they'd get the advantages of a strong, well-managed currency, without having to change their lax fiscal policies. Now they get the pain of fiscal discipline, and the currency in question is hitting new lows against the dollar. Such is life!