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Otmar Issing, the ECB’s former chief economist, recalls how, before 1981, “the Italian Treasury set yields for government debt. All the bonds that couldn’t be sold at that price had to be bought up by the Banca d’Italia.” Hence easy money, exploding debt, double-digit inflation – and no change in the country’s frozen politics. Why reform when you can always devalue?

It has to be through a combination of structural reforms, hoping they will work, and nominal wage adjustments, although one cannot be incredibly optimistic about the scope there. We know that that’s going to take a while.

The banks have to be recapped, and they have to be recapped not using sovereign money. I think that is really very, very high on the agenda. I don’t think they can make it without help to the banks.

If the banks were healthier, I think they would lend at lower rates

And the sovereigns have to be able to borrow at reasonable rates. As long as they behave and they do all the things they’re asked to do, they have to be able to borrow at lower rates than they currently do. Some way has to be found to do it.

We’ve done simulations. Other people have done simulations as well. 10% real depreciation would lead to a 1.4% increase in growth for a year — which at this stage, given the numbers, would be nice. The footnote, and it’s a very big footnote, is that … how much you benefit depends on how big your exports are related to your GDP and where you export — whether you export in the euro zone or outside. Unfortunately the countries that benefit the most are the countries that really don’t need it — Germany, the Netherlands. The countries that benefit the least are Greece, Portugal, Italy, Spain

There’s no question, the periphery countries have to improve their competitiveness. That’s not something even monetary policy at the level of the euro or fiscal policy can do. This they have to do through productivity improvements or nominal wage adjustments.

It is no secret that they have tended to respond to crises rather than be much more proactive.

And now there’s a sense in which they’re thinking about the full architecture.

At this stage I think there is a genuine commitment to thinking about the whole beast. That’s why these words — fiscal union, banking union — have come in.

Where I think there is still a problem is that all these things will take a lot of time. And some of these things may not happen because they’re unpopular. And meanwhile, there is a fire in the house. So they have to be willing to do more in the short term.

Draghi

a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum,

Greece, where the euro zone’s debt crisis erupted in late 2009, is the currency area’s most heavily indebted country, despite a big “haircut” this year on privately held bonds.

The key question remains whether Greek debt can become sustainable without euro-zone governments having to write off some of the loans they have made to Athens.

The anti-bailout part of the FDP platform is the one part of their rhetoric which could successfully take them over the 5% hurdle. The FDP’s complicity in using German taxpayer money to bail out the so-called profligate periphery is a one-way ticket out of Parliament.

“First, the Greek reports come via statements made by Michael Fuchs, CDU deputy Bundestag head and a senior member of German Chancellor Angela Merkel’s party. Fuchs warned earlier today that Germany would veto further aid to Greece if the country has not met the conditions of its previous bailouts.

“Second, all along Germany has indicated that it is resistant to increasing funding of the ESM and EFSF bailout facilities. This presents a problem in the case of Spain and Italy because of the size of those economies.

The long and short of it was that the Germans had reached the end of their ability to support bailouts.

All evidence is that this levy has created panic in Cyprus. After all, what is the use of having a deposit guarantee if government can arbitrarily circumvent it to impose losses on your deposits anyway?

One can't just blame Cyprus for this fiasco. The ECB, EC and European Union finance ministers signed off on the insured deposit grab too]

My view? It was inevitable that we would be in crisis again. The austerity world view of crisis resolution is completely at odds with the capacity of the euro zone’s institutional architecture to handle a crisis.

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.

In addition, observed GDP growth tends to be revised until several years after the first estimate

Our work is based on a simple Solow growth-accounting methodology.

A common feature of all economies is a collapse in productivity, which is typical of a big recession. In addition, Spain and Italy also underwent a very sharp labour contraction.

The additional effect of ageing.

A downside risk is that investment growth does not recover fully (for example, because banks fail to provide the necessary funding). In this case, we assume investment growth is only half what it was before the onset of economic turmoil.

We also estimate productivity through a convergence equation, which would slightly lift productivity in peripheral countries in the future.

This exercise suggests that in the absence of policy reforms, trend growth will have been damaged significantly, by at least one percentage point, post-crisis, compared with pre-crisis levels,

In the event that investment fails to recover quickly

 or unemployment levels take longer to fall than in previous recovery episodes, then trend growth would be significantly lower for longer. Trend growth might well remain negative in Spain and Italy, and may fail to increase for Germany or France.

this exercise shows the damage will indeed be long lasting, permanently impairing growth in a context of an ageing population that needs higher growth capacity than ever before.

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.