FRANKFURT: Say what you will about the Eurozone's quarreling policymakers. They can claim at least one achievement during 2012: Their common currency still has a heartbeat .
A year ago, many people seriously doubted whether the euro would still exist by now. On the threshold of 2013, the debate is about how long it will take for the Eurozone economy to recover and what must be changed to avoid future crisis.
Europe still has plenty to worry about. Economic output is shrinking in nine of the 17 nations that use the euro. European banks remain weak, and many have yet to confront their problems decisively.
Many businesses in Spain and Italy and other distressed countries cannot obtain credit, hampering a recovery.
On top of that, with national elections coming in Italy (February) and Germany (September), leaders there may be more focused on the narrow concerns of their voters, rather than the cause of European unity.
"At the moment the crisis seems to have calmed down somewhat," JensBSE 1.98 % Weidmann , president of the Bundesbank, the German central bank, said in an interview with the Frankfurter Allgemeine newspaper published Sunday.
"But the underlying causes have by no means been eliminated." But consider some of the doomsday scenarios that did not occur in 2012.
Greece did not leave the eurozone or set off a Lehman Bros-like financial disaster. Spanish and Italian bond yields, rather than succumbing to contagion from Greece, retreated from levels that had threatened their governments with bankruptcy.
And nowhere did populist, anti-euro political parties gain the upper hand. All of these things could still happen, of course.
But the probability of catastrophe has fallen substantially because of a fundamental change in the way that European leaders are dealing with the crisis. Under its president, Mario Draghi, the European Central Bank has promised to buy bonds of countries like Spain, if needed , to control their borrowing costs.
That vow, which cooled the crisis fever of late summer, bought time for elected officials to begin creating the superstructure that the euro needs to become more credible, including a permanent fund for rescuing stricken member countries and a unified system for overseeing banks.
"In 2012, the euro-area leaders finally got the diagnosis right," said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. "It wasn't about Greek debt or Irish banks. It was about some very fundamental design flaws that needed to be fixed.
That's what markets were looking for." Even though European political leaders seem to argue endlessly, they have made enough progress to keep speculators at bay.
Investors surveyed by UBS recently ranked the chances of a eurozone breakup well behind the danger from the socalled fiscal cliff in the US or a hard landing by the Chinese economy.
"There is more of a perception that nobody is better off if this thing breaks up," said Richard Barwell, senior European economist at Royal Bank of Scotland.
As the new year progresses, the question will be whether a fragile calm in Europe holds long enough for economic growth to resume, for banks to rebuild their balance sheets and for policymakers to make progress creating a more durable currency union.
indiatimes.com
A year ago, many people seriously doubted whether the euro would still exist by now. On the threshold of 2013, the debate is about how long it will take for the Eurozone economy to recover and what must be changed to avoid future crisis.
Europe still has plenty to worry about. Economic output is shrinking in nine of the 17 nations that use the euro. European banks remain weak, and many have yet to confront their problems decisively.
Many businesses in Spain and Italy and other distressed countries cannot obtain credit, hampering a recovery.
On top of that, with national elections coming in Italy (February) and Germany (September), leaders there may be more focused on the narrow concerns of their voters, rather than the cause of European unity.
"At the moment the crisis seems to have calmed down somewhat," JensBSE 1.98 % Weidmann , president of the Bundesbank, the German central bank, said in an interview with the Frankfurter Allgemeine newspaper published Sunday.
"But the underlying causes have by no means been eliminated." But consider some of the doomsday scenarios that did not occur in 2012.
Greece did not leave the eurozone or set off a Lehman Bros-like financial disaster. Spanish and Italian bond yields, rather than succumbing to contagion from Greece, retreated from levels that had threatened their governments with bankruptcy.
And nowhere did populist, anti-euro political parties gain the upper hand. All of these things could still happen, of course.
But the probability of catastrophe has fallen substantially because of a fundamental change in the way that European leaders are dealing with the crisis. Under its president, Mario Draghi, the European Central Bank has promised to buy bonds of countries like Spain, if needed , to control their borrowing costs.
That vow, which cooled the crisis fever of late summer, bought time for elected officials to begin creating the superstructure that the euro needs to become more credible, including a permanent fund for rescuing stricken member countries and a unified system for overseeing banks.
"In 2012, the euro-area leaders finally got the diagnosis right," said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. "It wasn't about Greek debt or Irish banks. It was about some very fundamental design flaws that needed to be fixed.
That's what markets were looking for." Even though European political leaders seem to argue endlessly, they have made enough progress to keep speculators at bay.
Investors surveyed by UBS recently ranked the chances of a eurozone breakup well behind the danger from the socalled fiscal cliff in the US or a hard landing by the Chinese economy.
"There is more of a perception that nobody is better off if this thing breaks up," said Richard Barwell, senior European economist at Royal Bank of Scotland.
As the new year progresses, the question will be whether a fragile calm in Europe holds long enough for economic growth to resume, for banks to rebuild their balance sheets and for policymakers to make progress creating a more durable currency union.
indiatimes.com
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