Afternoon Must-Read: Hugo Panizza: Rashomon in Euroland

…but a more stable euro zone requires expansionary fiscal policy now…. The problem is that northern countries do not want to implement expansionary fiscal policy…. Public debt is riskier in countries that cannot print their own currency… and the fiscally fragile periphery cannot implement expansionary policy without a backstop that can rule out debt runs. The only institution that can play this role is the European Central Bank…. If peripheral countries undershoot ECB’s ‘close, but below 2%’ inflation target, somebody needs to overshoot it. If Germany wants peripheral countries to become more like Germany, Germans may need to become more like southern Europeans….The euro zone is flirting with deflation and yet there are members of the ECB board who oppose a more aggressive policy stance. It would be good to know what economic model they have in mind. Charles Wyplosz asked; Mr Weidmann did not answer.