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WSJ: Europe's Single Debt Zone

November 30, 2010


This Wall Street Journal editorial argues that the permanent crisis-management fund will only make permanent crisis more likely.

European Union finance ministers agreed late Sunday on more than just an €85 billion bailout for Ireland. They also turned the currency union into a de-facto debt union by choosing to turn May's €750 billion rescue fund into a permanent feature of the euro zone. What's more, they promised that no sovereign creditor would face a haircut on their debt holdings until 2013, and that's at the very earliest.

Taxpayers from the more fiscally responsible countries, particularly Germany, will be on the hook for the budget failures of Greece, Ireland and any other country that may still require saving. This violation of the euro zone's own rules forbidding bailouts is not likely to improve fiscal discipline in those countries traditionally lacking it.

While laying the foundation for future reckless spending, the finance ministers did not solve the immediate problem they like to call "contagion." The word suggests that Portugal, Spain, Belgium and Italy are innocent victims of some inexplicable financial flu that has put pressure on their bonds. But it was their own economic policies that got them into trouble in the first place.

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