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Introductionsay that the Eurozone crisis is essentially due to inherent faults in the monetary union.Nevertheless, the crisis has exposed genuine problems that were neither manifest norlife-threatening before 2008–09. They would not be remedied by exit of a few countriesfrom monetary union, which would also be deeply harmful to those countries. Thepredicaments of the countries at the heart of the crisis (the GIPS – Greece, Ireland, Italy,Portugal, and Spain) are varied, and, he argues, are not primarily due to membership ofthe single currency, nor to fiscal profligacy (except Greece). It is also wrong to reducethe causes to inadequate ‘competitiveness’ that could be cured by currency devaluation.Only from 2003–04 were these countries running large current-account deficits withinthe monetary union; and these were financed (some would argue caused) by equallylarge capital flows from the surplus countries. Germany played the same role in theEurozone as China in the global economy. Unlike the US, however, the GIPS were not‘free spenders’ – they saw a fall in consumption as a share of GDP and a rise in theinvestment share during 2000–07. And unlike China, the capital flows from Germanyand France came primarily from banks – they were private not official flows. Themacroeconomic problem in EMU now is the fiscal consequence of the financial crisisin bank-based financial systems. Creditor countries have been unwilling to let theirbanks suffer the consequences of bad loans – rather, they have managed to put the entireburden on the taxpayers of the debtor countries. This disregards the EU and Eurozonefinancial integration that policymakers have promoted. The longer-term refinancingoperation (LTRO) was an inspired move to bypass German objections to the ECBtaking on the lender of last resort (LLR) role. But it is a temporary expedient. The onlystable solution is for the ECB to accept explicitly, in some form, the LLR role. To stopself-fulfilling confidence crises, the ECB should commit to cap yields paid by solventcountries with unlimited purchases in the secondary markets. Arbitrage will then bringprimary issue yields down to the capped level. For the long run, debt sustainabilityrequires economic growth. The current fiscal contraction is contractionary. Austeritypolicies are not the solution, but rather a major part of the problem. Moreover, fiscalcontraction together with private-sector deleveraging is not feasible without a currentaccount surplus. There will be no exit from the current debt traps and stagnation unless5