Austerity measures in Europe have been the topic of a heated and mostly confused debate in the economic world. During the May summit of the leading industrial nations at Camp David, German chancellor Angela Merkel and other European leaders pushed for continued European austerity. Keynesian critics argue that these policies destroy economic growth.

Hope springs eternal among policy makers in Europe’s beleaguered periphery. At five minutes to midnight in Athens, and with a bank run having started in Madrid, these policy makers cling to the forlorn hope that somehow Germany is going to relent on its strong opposition to euro bonds.

If past is prologue to the future, there is little reason to believe that Merkel will allow the ECB to provide unlimited support to the periphery.

Sunday’s elections results in six European countries, particularly France, Greece and Germany, bode poorly for satisfactorily resolving the European Union’s ongoing financial and political crisis.

Francoise Hollande’s defeat of Americain Nicolas Sarkozy does matter when it comes to foreign policy because Sarkozy has arguably been the most alliance-friendly French leader in decades—perhaps ever. 

Enjoying a fascinating visit to Berlin, newly designated capital of the (you must bail out the) Eurozone. One cannot help but feel for Chancellor Merkel, who is meant to be fixing the Eurodisaster on her own by creating a Eurofinance system relying on newly powerful Eurocrats who will remain without an actual democratic mandate from, you know, Europeans. But I get ahead of myself.

Attempts at austerity and deleveraging in Europe have converted an economic problem into a political dilemma, with leftist governments rising against Germany's austerity-laced rescue packages. Germany now faces a tough economic decision that will involve choosing between a breakup of the current euro system and a movement toward a common fiscal policy in Europe.

Housing markets will continue to go sideways, on average, during 2012, then they will begin their cyclical recovery in 2013.