In a nutshell, we're watching the most pitched, highest-stakes, most determined battle between politics and finance which has been staged. I am expecting finance to win.
The question is whether the Eurocrats can beat back the speculators. I find the whole situation much too complex. I can only come up with a list of things that I wish I knew.
1. What is the true state of the large European banks? In particular, if, they had to write down the principal on the debt of the PIGS by, say, 15 percent, which banks would still be solvent?
2. What does the option for inflating away European debt look like? How would the cost of that inflation be distributed? Can the inflation take place within the context of the euro, or does it require that some countries leave the euro?
3. Does a crisis create an opportunity for governments to make radical changes to the welfare state, or is that still not possible?
4. Suppose that governments have to choose between preserving their banks and preserving high levels of spending on public employees and retirees. Which choice is better for the economy? For political survival?