Is the crisis back?

Having swum against the tide of increased optimism towards the euro-zone for some months, we are wary of the temptation to leap on last week’s events in Italy as a vindication of our position. After all, political turmoil is hardly novel in Italy nor, increasingly, in other parts of the euro-zone. Nonetheless, the episode has both provided a further reminder that austerity alone cannot solve the currency union’s problems and perhaps exposed some cracks in the logic and design of the euro-zone’s primary crisis resolution mechanism.