It isn't shocking that non-German European voters are eager to end Austerity and issue some Euro bonds to finance a new round of "New Deal" stimulus. The New York Times keeps printing photos of passionate young European voters crying and celebrating "regime change". Before we enact Paul Krugman's plan, I would hope that we can discuss two points;
1. Given what we have learned from the U.S stimulus efforts, what is the optimal way to "jump start" the European economies? Tax cuts? government infrastructure projects? Free copies of Krugman's new book? Extra stimulus sounds like the "easy fix".
2. If the answer is more Keynesian "G", how will it sunset? What is the political economy mechanism such that it will sunset? What confidence should the bond holders of this next round of debt have that they will be paid back? Budgets must eventually balance -- what is the fiscal mechanism for paying back these new debts? Could there be sufficient economic growth stimulated by this new push to cover these new payments?
If Germany doesn't back this next round of bonds, what would there interest rate be due to the perception of future default risk? Would the French be issuing "junk bonds"? If the German promise as the "lender of last resort" lowers that interest rate, should the French officially thank the Germans for their kindness? As we continue to try to figure out how to escape from the macro challenges what do nations owe each other?
