There are only a few routes definitively out of the European sovereign debt crisis economic growth, inflation or default. Unfortunately, they are hard to travel while pursuing austerity policies in a single currency bloc. The lesson from this crisis is that austerity murders growth. Meanwhile default is still a taboo. That leaves inflation which we can only hope central banks will one day end up creating through QE and LTRO schemes.
Given the lack of measures that Europe can take to end the crisis, it has had to resort to a spectacular array of smoke and mirrors from Greek austerity packages, to EFSF sponsored co-investment funds and sovereign protection schemes, to private sector debt swaps. All have been finalised in recent days after an absolute age of wrangling over the technicalities.
The fact that these measures have become so complex and have thus taken so much manpower and time to put in place means too many people have been spending too much time focussed on an amount of debt that is but a detail compared to the bigger European picture.
That is not to belittle the misery being inflicted upon the Greek people regardless of whether you see them as victims or tax-dodging villains in all of this. Nonetheless with so much energy directed at Greece it is tantamount to an acknowledgement of the EUs inability to fix its own wider problems.
The more important debt crisis resolution measures have been the injections of liquidity into the markets by the ECB and the Bank of England through the LTRO and Quantitative Easing. Do such measures risk causing an asset bubble and inflation? Sure. Thats the point. If you are not going to inflict a default on investors, there can be no better way of surviving a debt crisis than with a confidence boost and a healthy dose of inflation. And if any of that cash reaches the wider economy to generate some growth then thats even better.
There are plenty of people in markets who think that Greece and the Troika will be back round the table before too long negotiating more bail-out cash after austerity yields, once more, poor results. Who can doubt them? As long as Greece can be kept on life support however, let us all hope that central bank liquidity schemes can do the heavy lifting for the rest of Europe over the long-term. Frankly, there isnt much else on offer.