Paul Krugman notes that the austerity consensus seems suddenly to have crumbled with the collapse of the Dutch government and the success of Hollande's campaign. I made the same point yesterday. Now Mario Monti has also joined the chorus. Unfortunately, while it's a good thing that the crew has finally recognized that the good ship Europe has hit an iceberg, the vessel may go down before the pumps are started. Spain was downgraded yesterday to triple-B and Spanish and Italian spreads are rising again on fears that the LTRO money has run out and banks are no longer propping up southern sovereign debt.
Meanwhile, Hollande's pro-growth proposals are, as I noted yesterday, a wet squib, mere window-dressing in the face of Europe's colossal problems. With this program he may survive the next week, which is his immediate objective, but he will then have to face governing for the next five years. Still, it's important that he has put the idea of a collective euro bond on the table. This could mark the exceedingly cautious beginning of a process that will eventually lead to the kind of institutional changes that are necessary at the EU level to make the single currency work. I remain pessimistic, however.