My new column is up at Forbes, and discusses solutions to the European debt crisis. The problem is that there are really only three, and all are bad, so most solutions being proposed either attempt to disguise that they are bad or to disguise that they are not really doing anything. An excerpt:
The default option will almost certainly wipe out a lot of powerful banking and financial interests as well as make it very hard for governments to keep spending money at their historic pace. This will certainly have a bad effect on the larger economy, but we should be careful accepting forecasts of economic catastrophe as most of these come from these same powerful bankers and politicians. Every group, down to the local dog catchers, argue that the world will suffer a calamity if their particular profession is harmed. What we do know is that large banks and financial companies are even more intertwined with the political elite in Europe than they are in the US. We can be pretty certain that, push come to shove, a solution that saves the banks and allows politicians to keep spending will be preferred.
That is why the Europeans will likely end up printing money to pay off the debt. They almost certainly would be doing so already,were it not for Germany’s strong memories of its Weimar inflation years, when exactly this kind of money printing to pay down government debt led to hyperinflation and political instability. But the appeal to politicians of shifting the costs from themselves and banks to the average consumer is simply too great to pass up. If Germany can be convinced, then the European Central Bank will print Euros. If Germany cannot be convinced, then countries will leave the Euro and print Lira and Drachma.