Europe’s Next Moral Hazard

The limit beyond which eurozone governments' creditors become anxious has been raised significantly by the bailout architecture put in place over the last two years. This will bring a few years of calm as debt levels climb steadily to that limit, before the architecture collapses, injuring ordinary citizens the most.

MUNICH – The euro crisis has passed through six phases so far. It is worth recalling them, because they show how policymakers stumbled along, trying to put out fires without keeping an eye on where their chosen path was leading them. Currently, markets remain calm, but this is only the beginning of a seventh phase of the crisis, during which Europe will become mired in debt. The sequence so far has been as follows:

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