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　　For the past 60 years, Europe has always man- aged to muddle through its problems. This time, however, might really be different.
　　Why has the euro zone crisis refused to go away? Everyone panicked in September 2008 when Lehman Brothers folded, but within a few months the US government seemed to have a handle on the situation. The Dow Jones was at an absolute low in March 2009, but today it is almost double that level.
　　But Europe’s crisis runs deeper. At its source are two fundamental and contradictory truths. First, debt cannot be cured with more debt. Europe is facing a balance-sheet recession in which the private sector, households and the government are all heavily indebted. Tax cuts simply do not work in such a situation: People will use the money to pay off existing debt, rather than spending it. Instead, governments need to look to methods like infrastructure spending to funnel money into the economy and directly re-employ people.
　　Second, European countries cannot all cut their way to growth at the same time. What Germany wants, an “austerity union for all,” is what John Maynard Keynes called the “fallacy of composition” – austerity makes sense for individual nations, but collectively it is disastrous. If every country in Europe is forced to cut spending and increase taxes, the continent could very well cut its way into extended recession, or even depression. The only way for the debtors to restore balance is for the creditors to help them out a bit.
　　Each truth negates the other, and therefore countries need to coordinate at the European level. Both debtors and creditors have to do their part. The debtor nations in Europe – Portugal, Ireland, Italy, Greece and Spain – should implement some austerity measures. But creditors – like Germany, France, Austria, Finland and the Netherlands –also need to accept some of the responsibility.
　　Germans often complain that they should not be punished for making good cars, for “being productive and competitive.” I faced an angry crowd in Berlin when I made the point that there are imperfect parallels to be drawn between them and the predatory lenders in the US subprime housing market. Who is to blame, the poor person who buys a million-dollar home he cannot afford, or the banker who tells him he can afford it? In a sense, Germany did well with the previous arrangements in Europe – they provided the money to the Italians, Greeks and Spanish that allowed them to buy German products.
　　So if the debtors have to adjust and lower their spending, then the creditors should start spending a little more. The best thing might be for Germans to vow for the next decade to go on holiday in the Mediterranean, and Greece in particular.