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Europe Secures Agreement To Draft New Treaty For Deeper Integration [LIVE UPDATES]

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BRUSSELS (Luke Baker and Mark John) - Europe secured an historic agreement to draft a new treaty for deeper economic integration in the euro zone on Friday, but Britain, the region's third largest economy, refused to join the other 26 countries in a fiscal union and was left isolated.

The outcome of a two-day European Union summit left financial markets uncertain whether and when more decisive action would be taken to stem a debt crisis that began in Greece in 2009, spread to Portugal, Ireland, Italy and Spain and now threatens France and even economic powerhouse Germany.

A new treaty could take three months to negotiate and may require losable referendums in countries such as Ireland. While nine non-euro-zone countries said they would join the euro zone in backing it, there were quickly notes of caution from some corners, including the Czech Republic and Hungary.

Two ECB sources told Reuters the European Central Bank would keep purchases of euro zone government bonds capped for now and take no extra firefighting action. Debt markets were wary. Interbank lending rates eased but Italian 10-year bond yields rose to around 6.5 percent.

Under the new treaty plan, the leaders agreed to pursue a tougher budget discipline regime with automatic sanctions for deficit sinners in the single currency area, but Britain said it could not accept the proposed treaty amendments after failing to secure concessions for itself on financial regulation.

"This is a breakthrough to a union of stability," German Chancellor Angela Merkel said. "We will use the crisis as a chance for a new beginning."

After 10 hours of talks that ran into the early hours of Friday, Britain found itself without any allies around the table, diplomats said. All the other nine non-euro states said they wanted to take part in the fiscal union process, subject to parliamentary approval.

"Once Cameron said for sure he wasn't in, it only took minutes for the other 26 to agree that they would push ahead with an intergovernmental treaty," one senior official involved in the discussions told reporters.

The rift, which could widen into a permanent divide between London and the continental mainland, occurred 20 years to the day after European leaders agreed at the Maastricht summit to create the single currency, with Britain opting to stay out.

Prime Minister David Cameron insisted at a news conference that it remained in Britain's interest to stay in the EU and take advantage of its single market.

One senior EU diplomat called Cameron's negotiating tactics "clumsy." Among other things, he had sought a veto on a proposed financial transaction tax, which may now be voted through by a majority over the objections of London's financial centre.

NO BIG BAZOOKA

ECB President Mario Draghi called the EU's decision a step forward for the stricter budget rules he has said are necessary for the euro zone to emerge stronger from the turmoil.

"It's going to be the basis for a good fiscal compact and more discipline in economic policy in the euro area members," Draghi said. "We came to conclusions that will have to be fleshed out more in the coming days."

Two ECB sources said the bank's governing council decided on Thursday to keep bond buying limited to around 20 billion euros a week and there was no need to review the decision in the light of the summit outcome.

"You will see some further purchases but not the huge bazooka that some people in the markets and the media are awaiting," one central banker said on condition of anonymity.

French President Nicolas Sarkozy told reporters the ECB's move to provide unlimited three-year funds to cash-starved European banks would be more effective, by enabling them to continue buying government bonds.

"This means that each state can turn to its banks, which will have liquidity at their disposal," he said.

Analysts said the notion that commercial banks could step up their purchases of government bonds looked optimistic given the same banks are being asked to deleverage and recapitalize.

"The lesson for banks from the stress tests was don't buy Italian bonds," said Berenberg bank economist Holger Schieding. "Buying Italian bonds is probably the last thing banks will do with this extra liquidity."

"SEETHES, SULKS, GLOATS"

Merkel said the world would see that Europe had learned from its mistakes and avoided "lousy compromise."

Sarkozy sounded elated at having united a big group around the euro zone as the EU's core, long a French objective, and many diplomats perceived France as being the big winner.

"This is a summit that will go down in history," he said. "We would have preferred a reform of the treaties among 27. That wasn't possible given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others."

One EU diplomat summed up the outcome as: "Britain seethes, Germany sulks, and France gloats."

Active ECB support will be vital in the coming days with markets doubting the strength of Europe's financial firewalls to protect vulnerable economies such as Italy and Spain, which have to roll over hundreds of billions of euros in debt next year.

Traders said the ECB bought Italian bonds on Friday to steady markets.

The euro rallied in Europe and U.S. shares gained, but analysts said the summit had done little to convince markets that a solution to the crisis was at hand.

Asked if the euro was safe now, Polish Prime Minister Donald Tusk said: "I'm not sure."

BRITAIN OUTSIDE?

Britain refused to allow its partners to amend the EU treaty, demanding guarantees in a protocol protecting its financial services industry, roughly one-tenth of the country's economy. Sarkozy described Cameron's demand as unacceptable.

Cameron hinted London may now try to prevent the others from using the executive European Commission and the European Court of Justice, saying: "Clearly the institutions of the European Union belong to the European Union, they belong to the 27."

But European Council President Herman Van Rompuy, who chaired the summit, said the EU institutions would be fully involved in the new treaty, which would be signed in early March at the latest. The euro zone plus nine may hold a summit without Britain as early as January, diplomats said.

The rift may increase pressure from Eurosceptics within Cameron's Conservative party and outside it for Britain to hold a referendum on leaving the EU, which it joined in 1973. The prime minister strongly opposes such a course, which he has said would be disastrous for British interests.

Britain conducts more than half of its trade within the EU and could suffer on a broad range of financial regulation issues if the other countries decided to move forward as 26.

Van Rompuy said the summit's key achievement was to tighten fiscal limits, including the need for countries to bring budgets close to balance.

"It means reinforcing our rules on excessive deficit procedures by making them more automatic. It also means that member states would have to submit their draft budgetary plans to the (European) Commission," Van Rompuy said.

But a new treaty will take weeks of wrangling as countries like Finland and Slovakia oppose a Franco-German drive to take decisions on future bailouts by an 85 percent supermajority to avoid being taken hostage by a single small country.

LAST-CHANCE SALOON?

In a meeting billed by some as a last chance to save the euro, the leaders also took several decisions on the permanent bailout fund, the European Stability Mechanism, which will come into force a year early in July 2012.

The ESM's capacity will be capped at 500 billion euros ($666 billion), less than had been suggested was possible before the summit, and the facility will not get a banking license, as Van Rompuy originally had proposed, due to German opposition.

It also was agreed that EU countries would provide up to 200 billion euros in bilateral loans to the International Monetary Fund (IMF) to help it tackle the crisis, with 150 billion euros of the total coming from the euro zone countries.

Cameron's decision to stay out of the treaty-change camp could spell problems for Britain. Deeper integration on the continent could involve changes to the single market and financial regulation, both of which could have a profound impact on the British economy.

"Cameron was clumsy in his maneuvering," a senior EU diplomat said. It may be possible that Britain will shift its position in the days ahead if it discovers that isolation really is not a viable course of action, diplomats said.

($1 = 0.7512 euros)

(Additional reporting by Catherine Bremer, Annika Breidthardt, John O'Donnell, Jan Strupczewski, Julien Toyer, Matt Falloon, Paul Carrel, James Mackenzie, Ilona Wissenbach, Justyna Pawlak and Andreas Rinke; Writing by Paul Taylor,; Editing by Mike Peacock)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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Wall Street closed higher this week, after European Union leaders announced that they'd reached a deal aimed at solving the Eurozone's debt crisis, according to Reuters:

The Dow Jones industrial average <.DJI> ended up 186.56 points, or 1.55 percent, at 12,184.26. The Standard & Poor's 500 Index <.SPX> was up 20.84 points, or 1.69 percent, at 1,255.19. The Nasdaq Composite Index <.IXIC> rose 50.47 points, or 1.94 percent, at 2,646.85.

For the week, the Dow rose 1.4 percent, the S&P gained 0.9 percent and the Nasdaq was up 0.8 percent.

Banks, which have been pressured by the uncertainty over Europe, rallied after the EU summit. Bank of America Corp rose 2.3 percent to .72, while JPMorgan Chase & Co added 3 percent to .18. The Financial Select Sector SPDR rose 2 percent.

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The ratings agency Moody's has downgraded three major French banks because they have had difficulty raising capital.

Moody's slashed its rating of the long-term debt of BNP Paribas and Credit Agricole by one level to Aa3 and cut its rating of Societe Generale's long-term debt by one notch to A1.

"The probability that the banks will face further funding pressures has risen in line with the worsening European debt crisis," Moody's said.

--Bonnie Kavoussi

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British Prime Minister David Cameron's decision not to sign on to the deal reached by other European leaders raises worries that England may split from the EU, Bloomberg reports:

Dec. 9 (Bloomberg) -- David Cameron found himself left behind as the 26 other European Union leaders began negotiating the future of the region’s economy. Delivering on a veto threat his predecessors carried with them to Brussels for the past 30 years, Cameron strengthened the hand of members of his Conservative Party calling for Britain to pull out of the EU.

It was Conservative Prime Minister Edward Heath who took Britain into an embryonic EU, the European Economic Community, in 1973. His three Tory successors have each battled to maintain influence in Europe while refusing to sign up to the federal dreams of their neighbors.

Read the full story here:

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The deal European leaders reached Thursday indicates that in the EU rift, French President Nicolas Sarkozy and European Central Bank President Mario Draghi came out winners, while British Prime Minister David Cameron came out losers, Reuters writes:

BRUSSELS (Reuters) - Napoleon dreamed of it, De Gaulle fought for it, but Nicolas Sarkozy may have achieved it -- a Europe of Nations with France in the cockpit and Britain on the sidelines.

The French president emerged as one of the big winners of a European Union summit on Friday which ended with up to 26 member states agreeing to move forward in economic integration around the euro zone, and Britain alone in staying out.

"Of course this is not just a long-standing desire, but a long-standing goal of French politics ... because in the French tradition Britain never really belonged to the European Union, dating back to De Gaulle," said a senior EU official who attended the summit, referring to the French president's veto of British entry in 1963 and again in 1967.

Read the full story here.

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James Goundry, country analyst at IHS Global Insight, wrote in a report on Friday that unlike European government leaders, the European Central Bank ultimately holds "the key" to mitigating Europe's current liquidity crisis.

But he wrote that the importance of the agreement yesterday should not be discounted, since it "could well mark a significant moment in the creation of a so-called 'two-speed' Europe, which began with the creation of the single currency." Goundry added:

"The European Council statement makes clear that a new 'fiscal stability union' would seek to deepen the internal market and enhance competitiveness and social cohesion, in addition to creating stronger fiscal and economic rules. Outside this union, the UK is likely to become increasingly irrelevant and marginalised."

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The New York Times is featuring a graphic that's tracking developments by country.

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Charles Wyplosz, an international economics professor at the Graduate Institute in Geneva, wrote in a blog post for VoxEU that European leaders still need to accomplish two more large goals in order to address the sovereign debt crisis.

Wyplosz wrote:

With regard to the crisis, the beginning of the end requires three steps: A backstopping of sovereign debts by the ECB; A credible commitment to fiscal discipline over the next 50 years or so in order to reduce existing debts to comfortable levels; Debt restructuring.

The summit has moved seriously on the second step, which makes the first step more plausible but, unfortunately, appears to have backtracked on the third.

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Add The New Republic's Matt O'Brien to the chorus of commentary criticizing the European Central Bank for not doing more to stop the Euro crisis. O'Brien argues that the ECB is the only institution that can truly save the day:

It’s not yet certain whether European leaders will arrive at an agreement at today’s summit in Brussels, but what’s already clear is that Europe is running out of time. After two years of kicking the can down the road, contagion from the continent’s debt crisis has begun to infect Europe’s core. Indeed, the credit rating agency S&P recently threatened to downgrade the credit ratings of the entire Eurozone due to the increased risk of financial cataclysm. Increasingly, commentators are suggesting that only one European institution can possibly save the day: the European Central Bank.

Read the full piece on TNR's website.

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The AP put together a list of the key players in the European financial crisis such as Angela Merkel, Nicolas Sarkozy, David Cameron and others.

Check out the cheat sheet here.

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Germany has laid out plans for rescuing its second largest bank from default if necessary, according to the German newspaper Der Spiegel.

German government sources told Der Spiegel that if Commerzbank does not raise enough capital by next summer, Germany will buy a majority stake in the bank. The European Union has mandated that European banks need to raise their capital ratio to nine percent, which Commerzbank may not be able to manage.

"Commerzbank is the clinical thermometer for the euro crisis," one source told Der Spiegel.

--Bonnie Kavoussi

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Philip Stephens, associate editor at The Financial Times, wrote in a column that Germany needs to learn how to be a leader, since it is decidedly the strongest power in Europe, and France needs to learn how to be a follower.

He wrote that the many photo ops of German Chancellor Angela Merkel and French President Nicolas Sarkozy -- designed to portray Europe as being led by the duo -- amounts to simply "keeping up appearances."

"The Franco-German relationship will always be a pivotal one, but it is now unequivocally unequal," Stephens wrote. "Paris needs friends beyond Berlin – in Warsaw, Rome and Madrid."

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Courtesy of HuffPost UK's liveblog:

This is the picture taken by the Press Association's Chief Political Photographer Stefan Rousseau featuring Cameron and his wife Samantha during a street party to celebrate the royal wedding in Downing Street.

It will appear on the prime minister's Christmas card for 2011.

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Even optimists have begun to concede that the end of the Euro may become a reality, HuffPost UK reports:

Battle-weary traders in Europe are readying themselves for yet another fraught deadline.

The consensus view is that Friday's EU summit - where major changes to the fiscal rules in the eurozone are being debated - will provide another crutch for the wounded monetary union to limp on towards its eventual goal of solvency. However, beyond the strong rhetoric designed to calm markets' fears, even optimists have been forced to concede that understanding the unthinkable - the end of the euro - is now more than just an academic exercise.

It is a marginal risk, but it is a real risk.

Read the full story here.

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French President Nicolas Sarkozy came out of a European summit today smiling, the Financial Times reports, indicating he got everything he wanted:

The one person who emerged from the European summit in Brussels with a big smile on his face was Nicolas Sarkozy, the French president, who appeared, at least from his body language, to have got everything he came for.

"This was a summit that will go down in history," he declared at an extraordinary press conference in the early hours of the morning, after the leaders of the European Union abandoned their efforts to agree on changes to the EU treaties in the face of a British veto. Far from bewailing the split, he seemed quite content.

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Wolfgang Munchau, associate editor of The Financial Times, wrote in a column that the only way to save the eurozone may be to destroy the European Union.

He wrote that British Prime Minister David Cameron's refusal to sign on to an agreement for tighter European control of countries' budgets -- as well as the eurozone's decision to pursue a treaty anyway -- demonstrated the currency union has decided not to let the larger European Union get in the way of its will.

"These latest developments have reaffirmed my conviction that the only way to save the eurozone is to destroy the EU," Munchau wrote. "But European governments may, of course, end up destroying both."

--Bonnie Kavoussi

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Floyd Norris, The New York Times' chief financial correspondent, writes in the NYT Economix blog that the European Central Bank "threw cold water" on IMF involvement, resulting in a disappointing deal:

This week some smart people thought they knew what was going to happen in Europe.

European and American officials thought there was a deal that would be worked out to provide the needed funding by printing money. There would be concessions to German demands for fiscal purity, but it would accept the need for drastic action.

Read the full post on Economix here.

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Daniel Gros, director of the Centre for European Policy Studies in Brussels, said in an interview with Reuters that the new agreement for fiscal integration of the eurozone "is a great leap sideways."

"The German view is that this is all that is needed to convince markets to buy Spanish and Italian debt. I have my doubts that it will be enough," Gros said. "I think the tensions continue."

David Mackie, an economist at JPMorgan Chase in London, had a similarly bleak take. "It's not the grand bargain some people had been hoping for," he told Reuters.

-- Bonnie Kavoussi

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Ordinary Britons say they're wary of Prime Minister David Cameron, but they support his decision to be one of the few leaders to reject a deal aimed at solving the Eurozone debt crisis, according to Reuters:

Some Britons may suspect his motives but they also believe Prime Minister David Cameron did the right thing in saying "no" to closer European integration.

Many suspect he may have been swayed by a desire to placate angry Conservative party right-wingers, but outright hostility towards Europe crosses the party divide.

"We should go the whole hog and get out (of Europe) looking at what the euro has done to Europe," said Tim Banks, a 42-year-old IT worker, who has traditionally voted for Labour.

"It was supposed to have been better for trade, but it has destroyed countries. Good on Cameron."

Read the full Reuters' report here.

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Peter Praet, a member of the executive board of the European Central Bank, hinted in a speech on Friday that the ECB does not plan to print money to buy large amounts of troubled government debt -- a move that many economists view as essential for saving the eurozone -- because a larger money supply would eventually cause inflation.

"Monetary policy in the euro area will remain dedicated to our mandate, which is to maintain price stability over the medium term," Praet said in Vienna.

Praet expressed support for European leaders' recent agreement for more central oversight of European countries' budgets. He claimed that reduced budget deficits and economic structural reforms would increase the "longer-term growth potential" of struggling European countries.

-- Bonnie Kavoussi

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The European debt crisis has brought Germany and Poland -- two countries that have historically been foes -- closer together, The New York Times reports:

BERLIN — In the battle over how to save the euro, Germany has plenty of leverage but not many friends. Among its staunchest supporters is also one of the most surprising, its historic enemy, Poland.

For all the damage wrought by the sovereign debt crisis in Europe, it has brought even greater harmony to the fraught and often bloody historical relationship between Poland and Germany. In the midst of discord, the former foes find themselves closer than ever, perhaps paving the way to a new axis of Paris, Berlin and Warsaw that could eventually form the core of a more deeply integrated Europe.

Read the full NYT story here.

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The European Banking Authority said the EU needs to raise 3 billion in extra capital as part of the deal to respond to the eurozone debt crisis, Bloomberg reports:

European Union banks must raise 114.7 billion euros (2.8 billion) in fresh capital as part of measures introduced to respond to the euro area’s sovereign-debt crisis.

German banks need to raise an additional 13.1 billion euros, Italian banks 15.4 billion euros, and Spanish lenders 26.2 billion euros in core tier 1 capital, the European Banking Authority in London said yesterday. The capital shortfalls include 15.3 billion euros for Spain’s Banco Santander SA (SAN) and 7.97 billion euros for Italy’s UniCredit SpA. (UCG)

European leaders are demanding the region’s banks bolster capital to withstand writedowns after they agreed to take losses on Greek bonds. The EBA estimated two months ago that the region’s financial institutions needed 106 billion euros to increase their core Tier 1 capital to a target of 9 percent of risk-weighted assets by mid-2012, after marking their sovereign bonds to match market prices.

Read Bloomberg's full story here.

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Ezra Klein, a columnist for The Washington Post, wrote in a Bloomberg View column that the eurozone crisis is a crisis of slow economic growth, not government debt, and that the summit deal today could unravel because European policymakers continue to focus on driving down debt levels at the expense of supporting economic growth.

The euro is making economic growth in struggling southern European countries even worse because the euro makes their goods expensive, while benefiting Germany by making its exports cheaper than they would be otherwise, Klein wrote. He added that struggling countries cannot simply leave the eurozone because then there would be a run on their banks, which would make their financial system collapse.

"Normally, countries in their situation would devalue their currency and try to grow through exports. But they can’t," Klein wrote. "And to make matters worse, they share a currency with Germany. Just as they drag the euro down, Germany pulls it up. So while Germany’s exports are cheaper than they should be, those of southern Europe are more expensive. The euro is making those countries less competitive, and less able to grow."

Read Klein's full column here:

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Graeme Leach, chief economist at the Institute of Directors, an organization made up of 43,000 business leaders mostly in England, but also around the world, told CNNMoney that a Euro collapse is inevitable unless the European Central Bank offers its support.

ECB President Mario Draghi has firmly said, time and time again, that the central bank's only mandate is to prevent inflation.

"It's the ECB or bust," Leach said. "Unless the ECB begins to operate as a sovereign lender of last resort function, with massive purchases of eurozone public debt, the inexorable logic is that the eurozone will break up."

The latest moves are steps in the right direction, but much more is needed, say experts.

"All of the harebrained schemes invented so far to resolve the crisis in euroland remain half thought out, unfunded and unimplemented...and therefore, still harebrained," said Carl Weinberg, chief economist at High Frequency Economics.

Read the full story on CNNMoney here:

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Michael Hudson, an economics professor at the University of Missouri at Kansas City, recently wrote a long piece arguing that a forced weakening of labor power in Europe amounts to a policy choice, not a necessity, that will benefit bankers at the expense of the European people.

"There is no technological or economic need for Europe’s financial managers to impose depression on much of its population," he wrote. "A debt crisis enables the domestic financial elite and foreign bankers to indebt the rest of society, using their privilege of credit (or savings built up as a result of less progressive tax policies) as a lever to grab assets and reduce populations to a state of debt dependency."

Hudson added that today's eurozone crisis "threatens to become a historic dividing line between the past half-century’s epoch of hope and technological potential to a new era of polarization as a financial oligarchy replaces democratic governments and reduces populations to debt peonage."

Read the whole article here.

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The European currency union has become like a bad marriage whose deep-seated problems have burst embarrassingly into public view, while the beleaguered partners stay together for the sake of the children. Maybe it's finally time for the unhappy couple to own up to the fact that they were never meant to be together. They bring too much historical baggage (a couple of World Wars, disagreements about whether it's okay for pork products to hang in shop windows). It often seem as if they are speaking different languages! The children -- Greece, Italy, Spain, Portugal and Ireland, for openers -- might actually be better off living by themselves. (Because, really, if your parents were Germany and France, with each decision in your life requiring their peaceful concurrence, how long ago would you have run away from home?)

The latest arrangement aimed at perpetuating this unhappy marriage is now emerging from the therapist's couch in Brussels, where most of Europe's member states were on Friday preparing to pledge that their finances should be tied together collectively in the name of fiscal discipline. Only one nation was holding out: Great Britain.

Read Goodman's entire column here.

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The S&P 500 rose 1.45 percent as of 11:20 a.m., and the Dow Jones Industrial Average rose 164 points, according to Thomson Reuters. The FTSE 100 in Britain rose 0.82 percent, the DAX in Germany rose 1.78 percent, and the CAC 40 in France rose 2.21 percent. The euro's value also stayed stable.

"European stocks are up today, and I have no idea why," Nobel Prize-winning economist Paul Krugman wrote on his blog.

--Bonnie Kavoussi

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European Central Bank President Mario Draghi denied the possibility on Thursday that the ECB would step in to rescue the eurozone by buying large amounts of troubled government debt to drive down borrowing costs. But he said he is supportive of European leaders' agreement on Thursday night to put European countries on a tighter budget leash.

"It's a very good outcome for the euro area, very good," Draghi said in Brussels. "It is going to be the basis for much more disciplined economic policy for euro-area members. And certainly it is going to be helpful in the present situation."

-- Bonnie Kavoussi

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On the WSJ's Euro live blog, Thomas Catan points out that Southern European countries like Spain have unfairly shouldered a lot of the blame for this mess. While Spain's been accused of profligate spending and running up the country's debt, it's worth noting that Germany actually run up a much higher public debt in the years ahead of the 2008 credit crunch.

In 2007, before the crisis struck, Spain had a modest debt load representing just 36% of its economy, according to European Union figures. And those responsible Germans? They had 65%.

During the past decade, Germany repeatedly breached the euro rules by running too large a budget deficit. Spain actually ran a modest budget surplus in the years before the crisis hit.

But haven't things changed since then? The German economy has powered through the crisis while the Spanish economy has languished, so you would think the two would have traded places.

You'd be wrong. Last year, Spain's public debt load represented 61% of its economy. Germany's rose to 83%. In fact, Spain's debt burden last year remained below that of the Netherlands (63%), France (83%) and, for comparison, the U.S. (93%).

So if public debt is your yardstick, then the Spaniards were paragons of virtue. They borrowed lightly despite the fact that their euro-zone membership gave them an all-you-can-eat buffet of financing at bargain-basement rates.

Read the full story on WSJ.com

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Felix Salmon, Reuters' finance blogger, wrote on his blog that he fears that because the results of Thursday's European summit were "half-baked," the collapse of the eurozone "is now not a matter of if but rather of when."

"A continent which has risen to multiple occasions over the past 66 years has, in 2011, decided to implode in a spectacle of pathetic ignominy," Salmon wrote. "Europe’s leaders have set a course which leads directly to a gruesome global recession, before we’ve even recovered from the last one. Europe can’t afford that; America can’t afford that; the world can’t afford that. But the hopes of arriving anywhere else have never been dimmer."

--Bonnie Kavoussi

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Nobel Prize-winning economist Paul Krugman, an economics professor at Princeton and columnist for The New York Times, wrote on his blog that the eurozone summit was "a disastrous meeting," since it ensures that southern Europe will be stuck in a prolonged economic downturn and does little to address rising borrowing costs for indebted southern European countries.

"More austerity, more posing of the crisis, wrongly, as being all about fiscal deficits; no mechanism for ECB funding," Krugman wrote, denouncing the budget cuts that will be enforced by European leaders. "Somehow southern Europe is supposed to deflate its way to prosperity, while everyone runs a trade surplus, presumably against that potentially habitable planet we’ve discovered 600 light-years away."

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