Martin Wolf has a better grasp on the Eurozone crisis than most nonetheless he still writes.

So what is to be done? Last week, I moderated a discussion of this topic at a conference in honour of Paul de Grauwe of Leuven University in Belgium. I concluded that the eurozone confronts three interwoven challenges. The first is to manage the illiquidity in markets for public debt markets. The second is to reverse the divergence in competitiveness since its launch. The third is to create a regime capable of ensuring less unstable economic relationships among its members. Behind this list is a simple point: people have to believe that members will fare better in than out if they are to trust in the euro’s future.

No, they do not.

They need to believe two things

1) If they short Eurozone member bonds they will lose money

2) If they hold Eurozone bonds to maturity they will receive the principle and interest that are listed on the bond.

This is the alpha and the omega, the beginning and the end of this issue. Nothing else matters, because as long as these conditions hold it is always profitable for Euro holders to buy bonds at the prevailing risk free yield.

And, importantly someone must hold as many Euros as the ECB decides to print.

Now, the Euro itself could crash in value. That is, while the desire of Euro holders to themselves hold bonds is determined only by those two factors. Some folks could decide they would rather not hold Euros at all. This would put downward pressure on the exchange rate of the Euro in international markets. You would have a currency crash, not a bond crash.

However, given that the Eurozone is in current account balance, European debt is denominated in Euros, European foreign assets are denominated in dollars and the sheer size of the Euro area a massive crash seems unlikely and a small crash would be a clear net positive for Europe.

No one needs to be convinced of the general desirability of the European project or the long run prospects of the members. They need to be convinced that selling European Sovereign debt is not a way to earn profit.

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