Can Europe find a political solution?

Eurozone quick-fix will create political monster

Second, even if European governments put up enough capital, they would not do it right. They would repeat the mistake they made in October 2008, when EU leaders agreed to recapitalise their banks, each for themselves. Judging from their comments, Europe’s leaders have learnt nothing. The reluctance to shift power over banking to the eurozone level is, of course, deeply rooted in national politics. Political parties and non-commercial banks are closely interlinked in Spain and Germany. In Germany, the savings banks and Landesbanken play an important role in the financing of industry. In political terms, this minimal solution is not minimal at all.

Third, a solution that relies on the financial sector hits a dilemma inherent to the structure of the European Union. A single market for finance is an EU-level competence that cannot easily be reduced to the eurozone. Non-eurozone members such as the UK would almost certainly not join such a system, and might block a single banking supervisor. If you rely on a financial insurance backstop as your main strategy, the non-eurozone members would ultimately be forced into the eurozone, or out of the EU. So you might end up saving the eurozone, by breaking the EU – or vice versa.

His comments on the UK come the same day that former PM John Major called on the UK to take power back from the EU. Many analysts looking for a euro or EU breakup have far too "optimistic" time lines. The politicians of Europe are willing to accept pain in order to preserve their political gains. The question is how much pain does the market inflict before they arrive at a solution? In the long-term of 5 to 10 years, the EU optimists have not factored in the impact of declining social mood. Some of the pro-EU leaders in power now may be replaced by anti-euro/anti-EU leaders as soon as next year and if mood declines, the probability of anti-EU or anti-euro parties winning increases as time goes by.