The biggest part of the problem is structural as member countries have no real incentive to show fiscal restraint outside of market discipline. You can recapitalize banks until the cows come home, if you don't show fiscal restraint and keep costs under control the prospects for growth are slim & none. If you print and monetize some of the debt and it works the first time but you keep spending it won't work the second time. As a matter of fact, it won't work the first time if you don't announce credible plans to keep costs under control while your printing.
The solution is action. The plans for a banking union and deposit insurance need to be put into action. That will help but the real kicker is Euro bonds. Single countries can't be forced to default or have the perception that they can be. On top of Euro bonds needs to sit an authority on spending. The new French presidents lowering of the retirement age was some of the most idiotic shit to come out of this crisis and gets to the crux of the problem. Countries want to be free to do whatever they want irregardless of what it means for the rest of the EU. All this leads me to now believe that none of this will be fixed without a huge catastrophe.
It's not going to be pretty but without a depression type occurrence the pressure won't be great enough to truly unify Europe. It took the near decimation of WWII and the zero growth that followed to get this far, and I think it'll take something nearly as bad to get us the rest of the way. I hope I'm wrong but judging from market action the markets won't except half measures. It's Euro bonds or nothing and only real economic pain inside Germany and the rest of the EU will open their eyes. Both sides need to give something up to meet in the middle, let's hope they both don't need to be brought to their knees to start moving in that direction.
And then we have China
The Chinese have pulled off one of the greatest feats in economic history going from a huge mud stain to the worlds second largest and fastest growing economy. It now seems they've come too far too fast and will have that dreaded hard landing. It's biggest customers Europe and America are having a hard time right now so it's only right they feel the pinch.
Numbers out of China are as reliable as Enron's 2001 Q1 earnings report so all the world can go off are their actions. They've recently cut rates back to back signaling it might be more trouble there than the world thought. China's problems are well known and documented but in a nut shell they can't depend on the world to keep buying their goods. They need domestic spending to pick up in a big way. This is difficult to achieve with a population that's used to saving so much of their money. They're making progress with this but not nearly as fast as the rest of the world is stalling.
It will be interesting to see if they can hit their trade target of 10%. Then again how would we even know if they didn't? Maybe if someone tallied the worlds numbers on imports from China? Either way if Europe drags down the US the US will certainly drag down China and China has the furthest to fall.
Today's jobs numbers here in the US point to the major problem. If you take all the jobs away from your biggest customers how can they continue to be your biggest customers? They can't. Because of this I think China will have that hard landing because we in the US can't sustain our purchases from the country. Sooner or later the geniuses in Washington will realize that they can't help create jobs with a huge ass trade deficit.
I was in the "free trade is the only way" camp myself until recently. It dawned on me that as long as we have this huge trade deficit we won't ever be able to create meaningful amounts of jobs here. This is bad news for global US companies but they have made huge amounts of money under this free trade arrangement, clocking the largest earnings numbers in history while the country suffers the worse economic times in a generation. If they're not careful they'll break one of the cardinal rules "Don't kill the goose that lays the golden egg."
Maybe it'll take a depression like downturn here to bring on real protectionist sentiment but it's coming. And yeah I said it, the bad word "protectionist" and I meant it. Even with the a push to levy tariffs on Chinese goods that get subsidized it's not enough. China isn't the only place US jobs go to die. NAFTA has made a huge trade deficit with Mexico and continues to widen it. This must be dealt with. Sorry, but "protectionism" can't continue to be a bad word because American jobs and the American economy need to be protected.
All in all it's clear that QE by it's self doesn't work. It's been proven all over the world. All we've thrown at the problems have brought us here basically not much better off than we were 5 years ago. There's things we could have done and should have done as far as policy is concerned, and things we still must do. None of which will be painless or easy.
Some say we need to print more money to get out of this but printing money can only go so far. You can't make real jobs by printing money. Low interest rates only work if demand is strong enough to spur borrowing & investment. People won't barrow unless they see a way to pay it back. And that way to pay it back can't be more borrowing. I'm afraid we need the big reset. We need assets to go down and interest rates to go up. We need people to hoard cash until assets reach a level that forces demand. We need hardship to spur innovation. No one is more innovative than a hungry person. It seems the market is so distorted that the natural instincts of market participants are too far out of whack to rectify themselves. I really hope I'm wrong about this but the way things are looking it doesn't seem like it.