The Euro Crisis
I think Wolf is right that the key to resolving the crisis is to make the ECB the backstop for euro area sovereign debt, just as the Bank of Canada ultimately stands behind Canadian government debt denominated in Canadian dollars. Only a central bank has truly unlimited “firepower” vis a vis the bond markets.
The alternative of joint government responsibility for all euro area government debt through an expanded or levered financial stability fund may work for a while, but means that any worsening of the crisis would bring down the relatively strong countries (like France) along with the relatively weak. Moreover, it implies that the stronger countries will de facto be given the power to set the fiscal policies of the weaker countries. Greece has already effectively lost the power to determine its own fiscal policies, and Italy does not seem too far behind. This fundamentally undermines democracy in the name of financial stability.
Too bad that making the ECB a true central bank seems to be a political non starter in Germany. I can understand fears of inflation, but what about memories of the Great Depression?