Plan B - Screw the Germans

The Economist is plumping for a brilliant new plan to save the PIGS (Portugal, Ireland, Greece and Spain), well to be fair, just the PIG. The article, titled The euro area: Time for Plan B is filled with euphemisms like restructuring (aka default), insolvent (bankrupt) and euro zone's core (Germany). To be fair, the article admitted to the last euphemism, but used it anyway. What's the point? The point is that everyone who lent these countries money is going to lose, because they won't, can't or shouldn't pay their just debts, even though they are sovereign nations.

At the same time the costs of buying time with loans have become painfully clear. The burden on the countries that have been rescued is enormous. Despite the toughest fiscal adjustment by any rich country since 1945, Greece’s debt burden will, on plausible assumptions, peak at 165% of GDP by 2014. The Irish will toil for years to service rescue loans that, at Europe’s insistence, pay off the bondholders of its defunct banks. At some point it will become politically impossible to demand more austerity to pay off foreigners.
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If Europe’s leaders stick to plan A, the debt crisis will continue to deepen. If they get on with restructurings that are eventually inevitable, they have a fighting chance of putting the crisis behind them. Plan B will require deft technical management and political courage. Thanks to its emerging-market expertise, the IMF has some of the former. It is up to Europe’s politicians to find the latter.

So, the Germans, whose voters worried about the impact to their own economy of lending to countries that seemed destined for default, will reap the exact reward their voters feared. Are there any lessons for the United States? Perhaps it might not be a good idea for the American taxpayers to bail out California and Illinois. And does anyone really believe that Europe's heretofore spineless politicians will suddenly find the political courage to make this work? Stand by for some interesting lessons to be learned.