Deliberations of the political economy continue to trump macroeconomic considerations in resolving the euro area crisis. Germany's strategy of using crisis panic and market pressure to forge consensus increases the economic cost day by day. In the last two months, the broad based withdrawal of overseas institutional investors marks another milestone. This follows of the heels of European investors cutting cross border exposures reinforced by national supervisors (such as the Austrians capping credit expansion to foreign markets) and even European bodies (such as the European Banking Association's stress tests).
Shall this trend implications on how the solution of the euro area crisis should look like? Unfortunately, yes. It seems national borders are getting reestablished in an effort to put Gini back into the bottle. But how can a joint currency make sense if...
