An often publicly heard policy recommendation is that weaker euro zone members should right themselves through austerity or leave the currency union. In any case, reform---not exit---is the right medicine.
The adjustment program implemented in Greece, Portugal, and Ireland are trying to strike a difficult balance between the necessary and the possible to turn around the economies. Orderly adjustment needs time and solidarity, just as it needed more than a decade and two trillion euros for former East Germany to get close to Western Germany's levels. German reunification like Europe's integration is, then and now, a political challenge and a historical chance. All the economic discipline can contribute is pointing out pitfalls and making good proposals to maximize welfare. The rest hinges on hearts and souls in Europe.
In my previous post,...
