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To remedy these defects, the Federal Reserve System, established in 1913, was to act as a lender of last resort, bringing all systemically important institutions – national banks , large state banks and trust companies – under the federal supervision of the Office of the Comptroller of the Currency or the Federal Reserve banks.

Consequently, when onerous rules, such as the prohibition on branch banking prevented banks from financing the emerging giant corporations, markets, assisted by more lightly regulated trust and insurance companies, stepped in.

But, they have not converged, especially with regard to state banks that often pressure state regulators.

Surveillance of a bank is not dependent on the geographic scope of its operations, as in the US, but on its systemic significance measured in several dimensions and whether it receives financial assistance from the European Stability Mechanism.

Europe, of course, has no significant centralized tax authority, so this key automatic stabilizer is essentially absent.

Many Germans today rightly feel that any system of fiscal transfers will morph into a permanent feeding tube, much the way that northern Italy has been propping up southern Italy for the last century. Indeed, more than 20 years on, Western Germans still see no end in sight for the bills from German unification.

A logical corollary of the criteria set forth by Kenen and Obstfeld, and even of Mundell’s labor-mobility criterion, is that currency unions cannot survive without political legitimacy,

European policymakers today often complain that, were it not for the US financial crisis, the eurozone would be doing just fine. Perhaps they are right. But any financial system must be able to withstand shocks, including big ones.

The implicit national government backstop was really only credible because of the international commitment to the European integration project. It was that commitment that led markets to believe that – in spite of the no bailout provisions of the Maastricht Treaty – there were almost no limits to the amount to which debt levels could accumulate both in the private and the public sector.

When the democratic/popular backlash occurs, it takes the form of rejection of international/cross-border political commitment mechanism.

But Germany remains opposed on moral-hazard grounds: a joint guarantee of Eurozone members’ liabilities would strengthen individual national governments’ incentive to spend beyond their means.

The German Council of Economic Experts has proposed a European Redemption Fund (ERF). The plan would convert into de facto 25-year Eurobonds the existing sovereign debt of member countries in excess of 60% of GDP, the threshold specified by the Maastricht criteria and the SGP.

But this seems upside down.

it offers absolution precisely on the 60%-of-GDP margin where countries will have the most trouble resisting temptation.

the main explanation for the absence of US moral hazard is that the right precedent was set in 1841, when the federal government let eight states and the Territory of Florida default.

Ever since 1841, the market requires that US states running up questionable levels of debt pay an interest-rate premium to compensate for the default risk.

The version of Eurobonds that might work as the missing long-term enforcement mechanism is almost the reverse of the Germans’ ERF proposal: the “blue bonds” proposed two years ago by Jacques Delpla and Jakob von Weizsäcker. Under this plan, only debt issued by national authorities below the 60%-of-GDP threshold could receive eurozone backing and seniority. When a country issued debt above the threshold, the resulting “red bonds” would lose this status.

But one thing seems clear. German taxpayers, whose longstanding suspicion of profligate Mediterranean euro members has been vindicated, will not be happy when asked to pay still more for the cause of European integration. At a minimum, they will need some credible reason to believe that 20 years of false assurances have come to an end – that this is the last bailout.

but countries like Germany, which were over-saving and running external surpluses, have not been forced to adjust by increasing domestic demand, so their trade surpluses have remained large.

Of course, Germany fails to recognize that successful monetary unions like the United States have a full banking union with significant risk-sharing elements, and a fiscal union whereby idiosyncratic shocks to specific states’ output are absorbed by the federal budget. The US is also a large transfer union, in which richer states permanently subsidize the poorer ones.

But the fundamental crisis of the eurozone has not been resolved, and another year of muddling through could revive these risks in a more virulent form in 2014 and beyond. Unfortunately, the eurozone crisis is likely to remain with us for years to come, sustaining the likelihood of coercive debt restructurings and eurozone exits.

Those global institutions are weak, but the real crisis has been within the euro zone, which has no effective internal balancing mechanism: It lacks a federal structure to transfer money from surplus Germany to deficit Greece, and it lacks flexible internal exchange rates that could allow a Greece or Spain to devalue its currency and find its own equilibrium.

Portugal and Italy, on the other hand, specialised much more heavily in consumer-goods producing sectors and felt the brunt of Chinese competition. No Eurozone member was sufficiently well diversified to shrug off this kind of shock, something that should have made the euro’s architects think twice.

Specifically, they should have thought again, Kenen argued, about the coordination of national fiscal policies, the need for a common Eurozone budget, and mechanisms for transferring fiscal resources from booming to depressed regions.

These thoughts are spurred by the rather weak communique, which followed the meeting earlier last week of eurogroup finance ministers in Brussels,

There is, as yet, no mechanism in place to ensure bond market support to Spain and Italy and nobody, except the ECB, has the funds to keep their governments funded, should they be forced from the market. The ECB has suspended its bond-buying programme so the high-wire act continues, without a safety net.

As far as I am aware, this is the first time in the history of central banking that a sovereign state has been compelled, to the point of national insolvency, and by its own central bank (by our Government's choice, the ECB), to make whole those who foolishly purchased bonds issued by private banks, which had gone bust and been closed down.

Second, conditions will be attached to such a rescue. These recommendations could be clever if they require “Swedish-style” bank restructuring whereby shareholders and other major stakeholders are made to absorb first the losses, and if a new clearly untainted management replaces the previous one. Such interventions limit the costs to taxpayers; they can even turn a profit. Of course, the conditions could also be silly, raising the costs to taxpayers to huge levels.

But this is not what the official text says, which makes one suspect that policymakers have not agreed to something simple and clean. Most likely, they will keep negotiating and come with the usual 17-headed monster that exhausted diplomats are wont to invent.

There was no knock-out winner in this summit, but on points I’d have to say that the winner is the crisis.

Charles Wyplosz

More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro area). This includes 110 billion euros provided automatically to Greece through the Target2 payments system—which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.

No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product,

Water-assisted fracturing has been in use since the late 1940s, but it became “fracking” only recently, when it was married with horizontal drilling and the advanced sensing techniques that let it be used deep underground. Energy costs are surprisingly small; a Swiss-American research team calculated in 2011 that the average EROEI for fracked gas in a representative Pennsylvania county was about 87—about six times better than for Persian Gulf oil and 16 times better than for tar sands. (Fracking uses a lot of water, though, and activists charge that the chemicals contaminate underground water supplies.)

and pollution that kills more than 10,000 Americans a year (that estimate is from a 2010 National Research Council study).

In mid-March, Japan’s Chikyu test ended a week early, after sand got in the well mechanism. But by then the researchers had already retrieved about 4 million cubic feet of natural gas from methane hydrate, at double the expected rate.

How much of Venezuela’s oil wealth Hugo Chávez hijacked for his own political purposes is unknown, because his government stopped publishing the relevant income and expenditure figures. Similarly, Ross points out, Saddam Hussein allocated more than half the government’s funds to the Iraq National Oil Company; nobody has any idea what happened to the stash, though, because INOC never released a budget. (Saddam personally directed the nationalization of Iraqi oil in 1972, then leveraged his control of petroleum revenues to seize power from his rivals.)

Steel makers argue that they still have advantages in price — aluminum can cost as much as three times more — and flexibility, both for the manufacturer and the mechanic who will be fixing the car.“When you build a mass-produced vehicle, you really need to think about the consequences of the supply chain and repair and insurance costs,” Mr. Dey said.