PARIS: The European Union's Nobel peace prize comes just as a realisation is dawning that Europe's single currency - the EU's most ambitious project - has survived three years of incessant financial turmoil and is not going to break up.
But having narrowly avoided an acrimonious divorce and the loss of some of its errant children, the euro zone risks a future as an unequal, loveless marriage with frequent rows and the prospect of separate bedrooms.
Two things have become clearer in the last few weeks that were widely disputed before: contrary to prevailing opinion earlier this year, the euro is here to stay and could very probably keep all 17 members and add more in future.
But the euro zone has not yet found a way out of the doldrums of economic stagnation, unemployment and social dislocation that are widening the gap between northern and southern Europe and fuelling Eurosceptical populist movements in many countries.
Three events have changed the outlook for the euro area:
- The European Central Bank put a floor under the euro zone by agreeing last month to buy unlimited quantities of bonds of any troubled member state that accepts the conditions of a bailout programme.
ECB President Mario Draghi made clear the bank will use all its tools to defeat anyone betting on a break-up of the monetary union.
- The euro zone's permanent rescue fund came into effect last week after months of wrangling and legal challenges, providing a 500 billion euro backstop for countries that risk losing access to capital markets.
- And German Chancellor Angela Merkel signalled by visiting Athens that the EU's most powerful economy wants Greece to stay in the euro area, drawing a line under months of debate in Berlin, notably in her own coalition, about ejecting the Greeks.
Coincidentally, a flood of scenarios for the explosion and break-up of the euro that spewed out of the banks and political risk consultancies of London and New York for months has suddenly dried up. In currency markets, short bets against the euro have subsided.
Bond yields have fallen and bank shares have recovered. Spanish banks are having to borrow less from the ECB as some regain access to the money markets.
GREXIT RECEDES
In another micro-indicator of a changed climate, economists at US bank Citigroup have revised their view that Greece will almost certainly leave the euro, saying key euro zone players seem to have decided a Greek exit would do more harm than good.
The US bank lowered the probability of a "Grexit" to 60 per cent from 90 per cent, although it still believes Greece is more likely than not to leave the euro within 12-18 months, arguing that European governments are unlikely to agree to waive part of the country's huge debt to make it sustainable.
Don't write off a write-off, though, especially if it can be delayed until after next year's German general election. It may then seem a more rational, albeit unpopular, option than a disorderly Greek default and exit, with all the disastrous economic and social consequences for Greece and Europe.
One voice last week jarred with the easing of European existential anxiety: the International Monetary Fund said the EU's policy response remained "critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline".
In its role as an uncomfortable truth-teller, the IMF is trying to jolt the euro zone, especially Germany, into moving ahead faster with a banking union and closer fiscal integration, and altering the policy mix between austerity and growth.
In a candid acknowledgement, the IMF admitted it had underestimated the damage to growth wrought by budget cutting and urged Europe to ease up on austerity, drawing an indignant rebuff from Germany's finance minister.
indiatimes.com
But having narrowly avoided an acrimonious divorce and the loss of some of its errant children, the euro zone risks a future as an unequal, loveless marriage with frequent rows and the prospect of separate bedrooms.
Two things have become clearer in the last few weeks that were widely disputed before: contrary to prevailing opinion earlier this year, the euro is here to stay and could very probably keep all 17 members and add more in future.
But the euro zone has not yet found a way out of the doldrums of economic stagnation, unemployment and social dislocation that are widening the gap between northern and southern Europe and fuelling Eurosceptical populist movements in many countries.
Three events have changed the outlook for the euro area:
- The European Central Bank put a floor under the euro zone by agreeing last month to buy unlimited quantities of bonds of any troubled member state that accepts the conditions of a bailout programme.
ECB President Mario Draghi made clear the bank will use all its tools to defeat anyone betting on a break-up of the monetary union.
- The euro zone's permanent rescue fund came into effect last week after months of wrangling and legal challenges, providing a 500 billion euro backstop for countries that risk losing access to capital markets.
- And German Chancellor Angela Merkel signalled by visiting Athens that the EU's most powerful economy wants Greece to stay in the euro area, drawing a line under months of debate in Berlin, notably in her own coalition, about ejecting the Greeks.
Coincidentally, a flood of scenarios for the explosion and break-up of the euro that spewed out of the banks and political risk consultancies of London and New York for months has suddenly dried up. In currency markets, short bets against the euro have subsided.
Bond yields have fallen and bank shares have recovered. Spanish banks are having to borrow less from the ECB as some regain access to the money markets.
GREXIT RECEDES
In another micro-indicator of a changed climate, economists at US bank Citigroup have revised their view that Greece will almost certainly leave the euro, saying key euro zone players seem to have decided a Greek exit would do more harm than good.
The US bank lowered the probability of a "Grexit" to 60 per cent from 90 per cent, although it still believes Greece is more likely than not to leave the euro within 12-18 months, arguing that European governments are unlikely to agree to waive part of the country's huge debt to make it sustainable.
Don't write off a write-off, though, especially if it can be delayed until after next year's German general election. It may then seem a more rational, albeit unpopular, option than a disorderly Greek default and exit, with all the disastrous economic and social consequences for Greece and Europe.
One voice last week jarred with the easing of European existential anxiety: the International Monetary Fund said the EU's policy response remained "critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline".
In its role as an uncomfortable truth-teller, the IMF is trying to jolt the euro zone, especially Germany, into moving ahead faster with a banking union and closer fiscal integration, and altering the policy mix between austerity and growth.
In a candid acknowledgement, the IMF admitted it had underestimated the damage to growth wrought by budget cutting and urged Europe to ease up on austerity, drawing an indignant rebuff from Germany's finance minister.
indiatimes.com
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