EUROPE and the EURO: a troubled union

Die Gelddruckmaschine

There’s something wrong with Europe. Is the euro crisis over? To judge from how often the words appear in global media, the answer is yes.

Markets have calmed since July 2012, when the president of the European Central Bank (ECB) Mario Draghi, promised to do “whatever it takes” to save the euro. Ireland and now Portugal are climbing out of their bail-out programs. Even Greece, where the crisis began, has just sold debt.

Yet, as these books all argue, the crisis was always about more than whether financial markets would buy government debt. It raised broad worries over how countries with widely differing levels of prosperity, competitiveness, public spending taxes, and regulation of labor and product markets, could share a currency without economic shocks blowing them apart. And it was about whether euro-zone voters would accept low growth, high unemployment and a permanent loss of sovereignty to the center. None of these concerns has been fully dealt with.

The biggest error was to misunderstand the underlying causes of the crisis. Because the first victim was Greece, it became accepted wisdom in Brussels (and Berlin) that the problem was profligate spending and borrowing. The Germans liked this explanation because it confirmed the suspicions they had before the creation of the euro that they might be lumbered with other countries’ debts. It also looked susceptible to a gratifyingly simple cure: ever more fiscal austerity. And it avoided any suggestion that Germany might have contributed to the crisis by running a large current-account surplus that its banks recycled in cheap loans to Mediterranean property developers.

The financial crisis that began with the collapse of America’s mortgage market was just one of many episodes of recent financial crises and America’s near-default in the summer of 2011.

The biggest worry may stem from the perception that the crisis is over. This is likely to slow or even stop further reforms.

If that happens, the EU and the Euro will get into trouble again-and the outcome next time could be even worse.



Fatima-Azzahra BOUZIDI

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