The latest remarks of European leaders about the EU crisis, and the markets’ positive response, leave me at a loss to understand what is going on. The idea seems to be that having a bit more argument about the shape of a Greek debt write-off, and moving forward with the recapitalisation of banks, is all that needs to be done.

The rhetoric assumes that this is a financial crisis. It isn’t. At heart this is a political crisis of the EU. It requires two societies — Greece and Italy — to decide whether they are going to adjust to the requirements of EU- and Eurozone membership. There are good arguments why both these states might want to cut and run. If they really cannot adjust their institutional frameworks to allow them to compete at European levels, they are better off outside the union.

But whatever is decided, the problem is a political one with only political solutions. Martin Wolf (FT sub needed) seems to think the same.



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