Germany profits because the more that financial markets flee from the bonds of other nations, the more money pours into German government bunds, reducing German costs of borrowing. So, what is to be done? If Hollande is elected President of France next week and attempts to pursue a growth policy in one country, as President Francois Mitterrand tried in the 1980s, he will be punished both by money markets and by other leaders. When Mitterrand tried expansion in one country, the result was capital flight and pressure against the franc. In those years, currencies were vulnerable to conservative financial pressures. Today, with a single European currency, it's government bonds that are under attack. But it's the same story.
With interest rates near zero, a decrepit infrastructure that must be rebuilt and a construction industry flat on its back, anyone with a whit of business sense would finance a massive Rebuild America program over the next few years, put people back to work, and build the sinews vital for a more competitive economy. Right now, the focus should be on putting people back to work and getting the economy moving. Until that happens, austerity -- as Europe is now experiencing -- is a contagion, not a cure.