- The Euro crisis is primarily due to the fiscal policies of the member states, not a crisis of relative competitiveness, balance of payments, and lack of aggregate demand.
- A return to the meaningless Maastricht criteria and greater fiscal policy integration would solve the underlying problem.
- Eurozone countries have to follow Germany's lead in reforming their labor markets. That is, they have to make sure that nominal wages rise significantly slower than productivity in a race to the macroeconomic bottom that is rewarded by export-led growth.
- German fiscal stimulus would be ineffective.
- The ECB acting as lender of last resort is ruled out by the Maastricht Treaty, would reward wayward governments like Italy's by monetarizing their deficits, and would represent a politically unacceptable transfer of resources between Northern and Southern Eurozone countries.
What it also overlooks is that Germany's labor market reforms are precisely the factor that led to the fiscal crisis of the periphery. They are intimately related, not separate items on the menu. A race to the deflationary bottom in the periphery will only lead to a collapse of German exports to the rest of the Eurozone and a double-dip recession, something not in Germany's interests either. Having wages trail productivity everywhere as a macroeconomic policy principle is a recipe for an aggregate demand disaster in the Eurozone unless you really expect emerging market export demand to make up the difference. If you don't, the only other possible source of aggregate demand is the German domestic economy.
What Europe needs is higher productivity growth and demand stimulus, not beggar-thy-neighbor wage dumping ("Lohndumping" in German, the root of the Eurozone problem) and fiscal austerity.