Unfortunately for the Europeans, there are no easy fixes. They seem to only have two possible solutions (at least solutions that are not just bandaids):
- Create a true United States of Europe with both fiscal and monetary union. Yeah that is a big step but all the smaller steps don't really sound workable at all. Some have suggested just having EU debt, instead of Greek or Spanish debt denominated in Euros. The problem with that is that northern European countries will become directly liable for the spending of their southern counterparts. Do you really think the Germans will be willing to guarantee Greek and Spanish debt without having a direct say in how much they are spending? The answer is nein. On the flip side though, I'm not sure Italians, Spaniards and Greeks really want to be told by the Germans what to do even if they are bailed out, so even the fiscal union idea might just be unworkable (that would actually be my guess).
- The Euro goes the way of the dodo. I think you would actually find quite a bit of popular support for this across Europe. The Germans are sick of worrying about when Greeks retire and Greeks are sick of Germans telling them they should work more. If everyone just has their own currency, everyone can mind their own business more and I think people will be happier. The big sticking point with this strategy will be the transition. When the Lira and Drachma come back, they will likely be massively devalued, causing hardship due to inflation and also bank failures as people who thought they might be sitting on $100 billion in Italian bonds might end up with only $50 billion in Italian bonds. Bank failures would pop up pretty quickly making things even worse. However, as we have seen with Iceland, the hardships do end and right now Iceland seems to be doing okay after a horrible couple of years. Another issue with this option is that there doesn't seem to be a mechanism for any of this to happen. Though given continental Europe's historical willingness to bend the rules when they have stood in the way, my guess is there is a way around that.