In August, Europeans head for the beach. The continent shuts down on theassumption that nothing of consequence will happen until everyone returns,suitably tanned, in September. Never mindthe subprime crisis of August 2007 or,closer to home, the European monetary crisis of August 1992: the August holidayis a venerable tradition. So, what shouldEuropeans be reading beneath their sun umbrellas this year?

Milton Friedman’s and Anna Schwartz’s A Monetary History of the United Statesbelongs at the top of the list. At the center of their gripping narrative is achapter on the Great Depression, anchored byan indictment of the US Federal ReserveBoard for responding inadequately to the mounting crisis.

Friedman and Schwartz are generally seen as reprovingthe Fed for failing to react swiftly to successive waves of bank failures,first in late 1930 and then again in 1931 and 1933. But a close reading revealsthat the authors reserve their most scathingcriticism for the Fed’s failure to initiate a concertedprogram of security purchases in the first half of 1930 in order to prevent those bank failures.

That is a message that the European Central Bank’s board members couldusefully take to heart, given their announcementon August 2 that they were ready to respond to events as they unfolded but were taking no action for now.Reading Friedman and Schwartz will remindthem that it is better to head off a crisisthan it is to rely on one’s ability to end it.

A second recommendation is another account of the crisis of the 1930’s, Charles Kindleberger’s The Worldin Depression, 1929-1939. (If vacationingofficials detect a pattern in their summer reading, all the better.)Kindleberger’s point is that avoiding a crisis – and when failing to avoid one,successfully exiting from it – requiresleadership.

Specifically, it requires leadership by a country with the power of thepurse and the willingness to use it. The problem in the interwar period, asKindleberger recounts it, was the reluctanceof the leading power, the US,to provide the leadership and financial wherewithalto resolve the crisis.

In Europe today, reunified and reinvigoratedGermanyis the only country capable of assuming this role. It could agree to swift bankrecapitalization, a banking license for the European Stability Mechanism, and amore expansionary ECB policy. If Germany provided this kind ofleadership, other countries would be quick to follow. Europe’scrisis would then be well along the path to resolution.

Germans sunning themselves on Greekislands, one hopes, would be inspired by such reading. But it is hard to beconfident.

Of course, books by economics professors about the Great Depression hardlya summer holiday make. For variety, European leaders could take along RonChernow’s biography of Alexander Hamilton. Hamiltonwas a colorful character, born out of wedlock, raised in the West Indies,and captain of an artillery company in America’srevolutionary war. More to the point, as George Washington’s Treasurysecretary, he crafted the bargain thatsuccessfully rationalized the US states’ debts.

US states entered their new union with different debt loadsand different capacities to service them. Hamilton made the casethat the federal government should assume responsibility for their liabilitiesstemming from the costs of financing the war. He identified a source of revenue– the tariff – that could be devoted to this end, and he rendered the bargainpolitically palatable by making clear thatif state governments accumulated additional debts, and again got into trouble,they would not be bailed out a second time.

European officials will argue that their problem is more difficult. Notonly does Europe lack a federal government,but there is no desire to create one. A close reading of Hamilton’s accomplishments,however, will remind European readers that there was an equally deep aversion to federalism in the early US. It tookpoliticians with vision and diplomatic skills to craftthe political entity that emerged after independence.

Finally, European leaders should consider adding to their book bag BarbaraTuchman’s The Guns of August (again, notice the month). Tuchmandescribes how a series of individual decisions, all of which seemed sound whenconsidered in isolation, had the unintended consequence of leading Europe into World War I.

No one is predicting war in Europe today.But what is true of international diplomacy – that a series of seeminglyreasonable decisions can have cataclysmicconsequences if no one bothers to figure out the endgame– is equally true of international finance. Europe is dangerously close to itsfinancial Sarajevo.The continent’s leaders, while relaxing on southern Europe’scrisis-ridden shores, should take Tuchman’smessage to heart.