Tyler Cowen gives us probably the pithiest write-up of the German standpoint on the Eurozone mess I’ve seen to date, a very useful reminder of how German concerns are trying to force the peripheral countries to accede to a harsher down-side than they might otherwise be ready for.

Consider the DeLong post from yesterday in this light. The ECB (which the Germans are preventing from acting) is the Fed, and the peripheral countries are Morgan Stanley. Using Bagehot’s rule (as paraphrased by DeLong), the ECB should be the lender of last resort, but it should only be bailing at a penalty rate. What could such a “penalty rate” mean in the European context? It only sensibly maps to some sort of loss of national sovereignty among the peripheral countries in the immediate future.

The reason I have so little faith in this working out is that I don’t see many countries agreeing to these kinds of terms. Indeed, it’s the central reason I’ve always been a Euroskeptic. Since WWII, European leaders have underestimated the importance of national feelings, always to their detriment. Until now, however, it hadn’t been an error of much consequence.