This writer of this article does not understand the debt crisis. The problem with European debt is not faltering domestic demand. The financial institutions in Italy are being “persuaded” to keep buying this debt, and the citizens have not yet figured out what is happening. The issue with Italy and all of these countries is that foreigners have stopped buying their debt and will not start buying it until euro-risk diminishes. The US is in the same position; we require foreign purchases to balance our national accounts.
The rule of confidence is simple. Once an institution loses confidence, it will not return until the market crashes and the institution is recapitalized and reformed. Confidence has been lost in the PIGS, and now there is only one way out.