The Economist believe they have a solution - it is a costly one - but the alternative is far worse. A rescue must involve the following things:
- Find which of the countries are deemed illiquid and which are insolvent. Give unlimited backing to the solvent countries and restructure the debt of those that can never repay it. People are today guessing whether the countries have good finances - or not. It is important to restore the confidence again.
- Ensure that Europe’s banks can withstand a sovereign default.
- Shift the Euro-zone’s macroeconomic policy from budget-cutting towards growth. Budget-cutting is self-defeating.
- Begin the process of designing a new system to stop this mess we are in from happening again.
Source: The Economist