Willem Buiter provides another incisive analysis of the euro zone crisis is this FT article.
From the article:
The endgame for the euro area, if the political will to keep it alive is strong enough, is likely to be a 16-member area, with banking union and the minimal fiscal Europe necessary to operate a monetary union when there is no full fiscal union.
Minimal fiscal Europe will consist of a larger European Stability Mechanism, the permanent liquidity fund, and a sovereign debt restructuring mechanism (SDRM). The ESM will be given eligible counterparty status for repurchase agreements with the eurosystem, subject to joint and several guarantees by the euro area member states. There will be some ex-post mutualisation of sovereign debt. Sovereign debt restructuring through the SDRM will recur.
One question is whether vulnerable euro zone countries could ever hope to regain robust creditworthiness with the SDRM hanging over them. Given the likely effects of threatened “bail ins”, it seems too early to give up on more ambitious efforts for ex-ante debt mutualisation along the lines of the German “wise men” proposal. (Gavyn Davies provides a useful analysis of the proposal here. This Bruegel blog post considers the less ambitious alternative of “eurobills”, which could be a stepping stone to more ambitious “eurobonds”.)