That something is what has curiously become the "progressive" approach to the crisis. It is curious not because it involves spending vast amounts of money, that has always been the progressive thing to do. Rather, the curiosity stems from the sudden alliance between the global left and anybody who's ever spent two seconds giving serious thought to capital flows in the Eurozone. It is not often that serious economists find themselves arguing side by side with the left and against the right. (Hey, there's a reason why I vote centre-right.)
Let's review the basics: In any currency area, at least one of three things must be true:
- There is a high degree of correlation between the economic growth and unemployment of the area's constituent parts.
- There is a high degree of labour mobility.
- There are fiscal transfers.
As for fiscal transfers, you would not necessarily say so listening to the European net contributors whine, but the worst of them - Denmark in 2009 - contributes 0,53% of GDP more than it receives. In the US, the state that is consistently worst off is New Jersey. In 2005, the most recent year included in this dataset, they paid $ 86 billion in Federal taxes and received $ 58,6 billion in Federal spending in return, for a net "loss" of $ 27.495 million. Compared to a state GDP of $ 429.985 million (source: www.bea.gov) that makes a net contribution of 6,4% of GDP, 12 times worse than Denmark. Likewise, the biggest beneficiary of all that largesse, Mississippi, gained 16.9% of GDP, doing about 3 times better for itself than Lithuania with its 5,33% of GDP.
Applying all this Optimal Currency Area theory to Europe yields a clear picture: without fiscal transfers, it won't work. The only question is how big they need to be, which is something that depends on the size of the Eurozone, the degree of asymmetry in its economic development and the size of the Member States that get in trouble. (Regarding the latter, remember that it would be cheaper at this point for Germany to just buy all of Greece's debt rather than to keep bailing them out. For Greece, its debt may be 145% of GDP, but that same sum represents "just" 11,3% of German GDP. Doing so is impossible, and a bad idea even if it were possible, but by strict arithmetic it would be cheaper.) There is no need to bring in any advanced Keynesianism here, just some straight-up Lerner & Mundell. Keynes comes in later, when you start figuring out what to do with those fiscal transfers.
Politically, however, this puts economics with the left and with the British, as opposed to the right and the Germans. More Europe is not the answer, at least not as long as More Europe means more power for Europe to make sure no one runs a budget deficit. Viewed that way, More Europe simply means ruling out fiscal transfers in an ever more stringent way. More Europe is only the answer to the extent that it means setting up European taxes and European spending priorities, thus undercutting the lethal calculus of "net contributors" and "net recipients". In the meantime, it is difficult to find fault with the British preference to stay out of this mess whenever possible. That is a coherent philosophical position, in fact it is just about the only coherent philosophical position, and it is quite unrelated to the traditional British penchant for Euroscepticism. The flag thing, yes, but not the ESM.
The PIIGS can't take this approach because they need German money. The Dutch and Sarko can't take this approach because they've already shot their mouths off one too many times. Belgians, Slovaks, Slovenes &c can't take this approach because they might need German money some day. But what is they excuse of the Finns and the Germans themselves? Who is going to tell them their President has no clothes?