Tim Duy sums up the current state of play in Europe. If David Cameron can appear clairvoyant, that says something about the persistent denial of reality in other European capitals:
On the issue of internal fiscal transfers, British Prime Minister David Cameron is joining the chorus of policymakers calling on Continental leaders to understand the extent of their problem:“Either Europe has a committed, stable, successful eurozone with an effective firewall, well-capitalised and regulated banks, a system of fiscal burden sharing and supportive monetary policy across the eurozone or we are in uncharted territory which carries huge risks for everyone.”That pretty much summarizes the situation. The institutional structure, the fiscal plumbing, simply isn't present in the Eurozone to adequately adjust for asymmetric shocks. End of story. Either get that structure in place or accept that the project is a failure. Can Europe make such a transition fast enough? Yes - with German leadership to offer a mix bilateral transfers, Eurobonds, and ECB commitment to stand as lender of last resort to all the region as a whole. Economically possible and politically possible, however, are two different things.