Euro Zone Death Trip - Paul Krugman

http://www.nytimes.com/2011/09/26/opinion/euro-zone-death-trip.html?_r=1&pagewanted=all

On one side, Europe’s situation is really, really scary: with countries that account for a third of the euro area’s economy now under speculative attack, the single currency’s very existence is being threatened — and a euro collapse could inflict vast damage on the world.
On the other side, European policy makers seem set to deliver more of the same. They’ll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don’t seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail.

Think of it this way: private demand in the debtor countries has plunged with the end of the debt-financed boom. Meanwhile, public-sector spending is also being sharply reduced by austerity programs. So where are jobs and growth supposed to come from? The answer has to be exports, mainly to other European countries.
But exports can’t boom if creditor countries are also implementing austerity policies, quite possibly pushing Europe as a whole back into recession.