Eurobonds are forbidden by the German constitution though. And why exactly is more borrowing the answer? ECB money would be monetization but eurobonds are just subsidized borrowing for the PIIGS, which we already had for years with their low rates. .
If you read the infographic you will find that borrowing by governments was not the cause (and even if it were that does not mean it can not be the answer, that is what widening the monetary base is partially about).
Italy and Greece would be running surpluses if they could borrow at U.S. rates (maybe Spain and Ireland too, I don't know) - so Eurobonds at the good rates they would attract can be an important part of the answer.
Borrowing from governments was not the only cause. But more borrowing wont make it better. Monetization does not create any more debt, while eurobonds do.
Italy and Greece did borrow at US-like rates for the last ten years. They can't pay back those debts, and saying that if rates were low they could afford to increase the debts even more is not that helpful. People have realized that there needs to be a plan that involves reducing debt levels, as the ever increasing bank leverage story that funded both the government and private sector debts is over now, so there are no buyers of new debt, at any interest rate.
"More borrowing won't make it better" is grossly oversimplifying. If, for example, Italy can borrow at US-like rates but not borrow since that would put them in a surplus position then obviously that would resolve their problem. As the article explained, Spain never once broke to EU deficit rules until the crisis pushed their rate up.
If you have bought the idea of "expansionary austerity" then I don't know what to say - it ain't gonna work and it hasn't worked for anyone so far. The problem right now is exactly that "people have realized that there needs to be a plan that involves reducing debt levels" - "people" want to do that now but now is not the time to do it, it is causing wasteful under-utilization of capital and causing GDPs to run way under their potential rates of growth.
The assertion that "there are no buyers of new debt, at any interest rate" is incorrect -- Spain, of all countries, sold more debt than it expected to on the open market 3 days ago.
My original comment was that Krugman was right about this crisis from day-one and about the US crisis before that. I am really just repeating things he has already said many times in many places that no one anywhere seems to be able to refute with real data.
I haven't bought the idea of expansionary austerity, but I really believe that the debt levels are far too high, and only managed to get that way because of a huge bubble, largely in the banking sector. Spain borrowed the other day because temporary measures to reflate worked briefly. Monetization or default are the two real options, or a combination.
Spain's problem never was the government, it was private sector housing, funded from abroad. The solution to that is structural, and also involves getting the private sector debts written off, which also means the banks are bust. Bailing these out will add another huge hole on the governments balance sheet, and make it even harder to fund debt.
