Euro crisis averted? Don’t believe a word of it

Thursday, February 9, 2012
By Paul Martin

Greece may be clinging on, but the eurozone’s real problems remain resolutely unaddressed.

By Jeremy Warner
09 Feb 2012

There’s nothing like the long Christmas break for calming things down. Back in early December, it looked as if the euro was on its last legs. Then everyone went on holiday, and by the time they got back, seemed quite to have forgotten what they were originally panicking about.

No one honestly believes the eurozone crisis has been vanquished, but since early January there has been a lull in the storm and even a sense of beginning to get on top of things. The European Central Bank’s promise of unlimited liquidity for the stricken banking system seems to be turning things around. Successful resolution of the Greek debt talks yesterday has added to the impression of a crisis in retreat.

Regrettably, it’s a view which is almost certainly wrong, both in political and economic terms. The ECB’s actions have bought time, but haven’t addressed the causes of the crisis. The problem of widely divergent competitiveness uncorrected by free-floating exchange rates remains exactly the same as before.

Berlin’s answer is to attempt to impose its own economic model on the rest of Europe, in the hope that once others are made as virtuous and competitive as Germany, the problem will go away. Even Germany privately acknowledges that there will always be imbalances within the eurozone, but if they can just be made less extreme, then Germans could perhaps be persuaded to sign up to some form of debt collectivisation, or transfer union, that might resolve matters. For the moment, markets seem to be buying this message.

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