More Euro Reaction

It looks like the latest attempt to kick the Euro can down the road is not getting much respect from the markets. Or from market watchers. Bloomberg says Europe keeps trying the same thing and expecting a different result.

To make Spain’s recovery possible, Europe must break the link between the banks and the government. Instead of lending the money for recapitalization to the sovereign, Europe’s bailout funds should agree to inject it directly into the banks -- as Bloomberg View has advocated. In return, European regulators should have a say in how management would be punished, and whether dividends and bonuses would be paid, at institutions that accepted the money.

That alone won’t be enough. The recapitalization should be part of a larger process that would forge a common euro-area approach to dealing with troubled banks, require private bank creditors to share in losses, consolidate the debt of euro-area governments and create a mechanism to stimulate growth in hard- hit economies such as Spain. A euro-area unemployment fund, for example, could accelerate much-needed labor-market reforms and boost Spain’s GDP growth by as much as 2.5 percentage points at a cost of about 25 billion euros a year -- an expense that would shrink as the added growth put people back to work.

Any of these actions would require the euro area to do something its most powerful member, Germany, has so far resisted: accept collective responsibility for the currency union’s survival. Spain’s predicament makes such a shift in strategy imperative. If Europe’s leaders can’t commit, this most recent gesture will only delay the inevitable, and the global economy will suffer the consequences.

It's possible that the only politically acceptable solution in Germany would be for Germany to leave. The price might be high - suddenly high priced exports and perhaps a trillion in noncollectable debt.