Pearlstein Gets Europe Half Right by Dean Baker

Steven Pearlstein gets half of the story of the euro zone right, it will take renewed spending supported by euro-wide bonds to end the crisis. But that is only half. To restore the competitiveness of the peripheral countries, Germany and other core countries will have to see higher inflation.

We are not going to see prices actually fall in Spain and Italy. This means that if output in these countries is going to become competitive again in a reasonable period of time we will need to see inflation in the 3-4 percent range (possibly higher) in Germany and other core countries.

In keeping with this target, the European Central Bank should be the issuer or guarantor of the bonds. This should help to bring about the higher rate of inflation that is needed to restore balance between the euro zone regions.