How Will the Euro Zone Crisis End?

ENFORCE DEFICIT LIMITS—WITH SANCTIONS

Pro: A clearly necessary step to keep member nations from spending their way into trouble.

Con: Budget deficits are inevitable in recessions. Deciding when they are and aren't acceptable will remain difficult.

BREAK UP THE EURO ZONE

Pro: Allows weak nations that leave (perhaps temporarily) to regain cost competitiveness through a currency devaluation.

Con: Proliferation of currencies would complicate trade and investment. Chaos, lawsuits, and national defaults could be the result.

CREATE A "UNITED STATES OF EUROPE"

Pro: A unified taxing and spending authority would be the strongest guarantee of euro stability.

Con: It would violate the euro zone treaty, and its infringement on sovereignty would surely be rejected by all member nations. An EU nonstarter.

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