The euro crisis just got a whole lot worse

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To think the problems can be solved either by fiscal austerity or, as advocated by Hollande and others, by its polar opposite of fiscal expansionism is to descend into fantasy. By reinforcing the cycle, and thereby exacerbating the slump, fiscal austerity is proving self-defeating. Far from easing the problem of excessive indebtedness, it is only making it worse.

But it is equally absurd to believe that countries in the midst of a fiscal crisis can borrow their way back to growth. Who is going to lend with the certainty of a haircut or eurozone break-up to come?

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For now, there is no majority in any eurozone country for leaving the single currency, but one thing is certain: nation states won't allow themselves to be locked into permanent recession. Eventually, national solutions will be sought. The whole thing is held together only by the fear that leaving will induce something even worse than the current austerity. This is not a formula for lasting monetary union.