Debt relief: for Europe, the time is drawing near.

• Author: Rogoff, Kenneth

Eurozone leaders continue to debate how best to reinvigorate economic growth, with French and Italian leaders now arguing that the eurozone's rigid "fiscal compact" should be loosened. Meanwhile, the leaders of the eurozone's northern member countries continue to push for more serious implementation of structural reform.

Ideally, both sides will get their way, but it is difficult to see an endgame that does not involve significant debt restructuring or rescheduling. The inability of Europe's politicians to contemplate this scenario is placing a huge burden on the European Central Bank.

Although there are many explanations for the eurozone's lagging recovery, it is clear that the overhang of both public and private debt looms large. The gross debts of households and financial institutions are higher today as a share of national income than they were before the financial crisis. Nonfinancial corporate debt has fallen only slightly. And government debt, of course, has risen sharply, owing to bank bailouts and a sharp, recession-fueled decline in tax revenues.

Yes, Europe is also wrestling with an aging population. Southern eurozone countries such as Italy and Spain have suffered from rising competition with China in textiles and light manufacturing industries. But just as the pre-crisis credit boom masked underlying structural problems, post-crisis credit constraints have greatly amplified the downturn.

True, German growth owes much to the country's willingness a decade ago to engage in painful economic reforms, especially of labor-market rules. Today, Germany appears to have full employment and above-trend growth. German leaders believe, with some justification, that if France and Italy were to adopt similar reforms, the changes would work wonders for their economies' long-term growth.

Yet what of Portugal, Ireland, and (especially) Spain, all of which have taken significant steps toward reform since the crisis? All are still experiencing double-digit unemployment rates amid moribund growth, and, as the last International Monetary Fund Fiscal Monitor made abundantly clear, all still suffer from significant debt problems.

Debt overhang traps countries in a vicious circle. Exceptionally high public and private debts constrain a country's options and are indisputably associated with slower growth, which in turn makes it difficult to escape a debt trap. Last spring's campaign against anyone who dared to worry about the long-run effects of high...