Suzy Khimm’s interview with Henry Farrell is full of good stuff, but the best is right up at the beginning:
The fundamental problem here is a profoundly political problem. It used to be that bondholders assumed that the EU had changed things so that bigger member states were on the hook for the debts of the poorer member states. Therefore, it made sense to lend money to poorer member states, and bondholders were going to get their payday. I would call it a confidence bubble. It coasts along for a period of time, but once that confidence bubble gets pricked, it’s really hard to get it back. Bondholders were basing their holdings on set of political expectations — that when push came to shove, Germany would either bail out Greece, or Greece would never have to be bailed because it would behave the way that good northern states would.
In the EU, the instinct is always to fudge — to come up with technocratic fudges that are incomprehensible to the outside world but get some minimum consensus among states…But the problem is not a technocratic problem. It’s a political problem. So they’re going to hesitatingly help out the Greeks, but it’s not going to provide political actors or market actors the confidence I think they need
But they don’t just fudge because they’re jerks or something. Fudges are the only way to produce the level of consensus the EU needs to operate. So you get what we have here this week.