On http://marginalrevolution.com/marginalrevolution/2012/04/two-tweets-from-dani-rodrik.html:

Squarely Rooted April 19, 2012 at 7:42 am
“but I do not get why so many Keynesian economists are so reluctant to condemn the legal and regulatory policies, and rent-seeking practices, of the eurozone periphery.”

Because they are irrelevant to the question! Every country in the world, to some extend, suffer from ill-advised or growth-hampering “legal and regulatory policies, and rent-seeking practices.” If you were to simply draw up a list of such practices in the United States, you would find a terribly long list, and the US is probably among the best nations in the world on this score. Yet nobody is terribly worried about the United States, or indeed many other more
dysfunctional countries, defaulting on their debt in the immediate future, because all these nations have monetary sovereignty. Before the crisis Spain was running a budget surplus; then the economy cratered and they began running a deficit. Under normal conditions almost nobody would judge such a swing as anything but a well-advised maintenance of current levels of government spending in the face of increased demand for unemployment insurance and shrinking revenues. But because Spain does not have control over it’s own money, nor the last resort of printing more of it, such deficits caused terror in the markets. Israel is a good example of a nation that had outstanding debt of up to 100% of GDP during the boom years and managed to continue growing while simultaneously reducing debt during the bust years. They did this by tolerating a higher level of inflation and allowing their currency to devalue relative to trade partners. Since Spain had neither option they are suffering.

I don’t think Keynesians are “reluctant” to condemn bad labor market policy in the periphery; I think they are reluctant to focus on such policies when they are neither the cause nor the solution to Europe’s crisis. It is the equivalent of condemning a family for leaving the air conditioning on when they are out of the house while the house is burning to the ground.

Squarely Rooted April 19, 2012 at 7:52 am
Denmark saw the interest rate on its government debt nearly double from just over 2% to nearly 4% between mid-2010 and mid-2011. Was this because of Denmark’s irresponsible spending? Their debt-to-GDP ratio climbed a small amount and remained well under 50%. Was this because of their misguided European labor policies? That would bely the fact that Denmark (while having a large minimum wage, large taxes, and large unemployment benefits) has the most flexible and
loosely-regulated labor market in Europe.

Perhaps it is because, now that the ECB has demonstrated itself blithely unconcerned with any problem or concern other than German price stability, even at the extent of the solvency or fundamental political stability of the other nations in its charge, investors were fearful of loaning to any nation who had surrendered its money to the ECB.