Eurozone governance and the Berlin consensus by Philip Whyte

 ''..What bearing does all this have for the reform of eurozone governance? First, fiscal consolidation and structural reforms in the periphery may be desirable objectives, but they will not restore the most indebted countries to solvency. Second, extending loans on less than generous terms, as Ireland's partners are doing, will buy time but is unlikely to stave off the inevitable: a default on, or restructuring of, peripheral government debt. Third, it is wrong to portray the eurozone crisis as a problem in the periphery alone. The sovereign debt crisis and the banking crisis are inextricably inter-twined. In the peripheral countries, the link is overt. In the core countries it is suppressed. German banks, for example, are under-capitalised and highly exposed to default in the periphery – a fact that the German government is not keen to discuss.

Since a sovereign debt restructuring in the periphery would have repercussions for the solvency of banks in the core, the eurozone needs a crisis management framework to deal with both eventualities..''  CER

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