Europe Keeps Missing The Point

Flickr/Paul Denton Cocker

Markets are falling today following comments from President of the Eurogroup of euro zone finance ministers Jeroen Dijsselbloem, to the effect that the Cyprus bailin could be a good model for future banking crises.

In other words, rather than blank checks and sanctified status for creditors, it's ideal to see them take a hit or a haircut. This sentiment isn't horrible.

Another feature of the Cyprus bailin is the fact that Cyprus's debt sustainability is a lot better now than it would have been had the country just been given a loan from the IMF or something like that.

So now in addition to austerity and reform, Europe will focus more on taking pain and clipping creditors, rather than just papering over crises with more money.

But they're still dancing around the real point, which is the flawed monetary structure.

The reason Europe is in this mess -- and the reason it's assumed that there will be more messes for which Cyprus can serve as a template -- is because these countries lack their own currency and monetary flexibility.

That's the essence of the sovereign debt crisis (which is why Cypriot banks got into trouble on Greek bonds) and the reason Cyprus is at the mercy of the outside world in dealing with its own banks.

The Germans like to convince themselves that they're the ones writing the checks in Europe, and that's partly true, but the fact of the matter is the only thing that's really worked to calm the European crisis over the last few years is the ECB stepping up its role as a backstopper of government debt. That's what's really worked. Other efforts have been a sideshow.

So great that they want to talk about debt sustainability and all that. But it's missing the point about the world that needs to be done.