Debt Virus Spreads During Make-Believe Recovery
by Matthew Lynn
The euro area is growing again. The banking system has survived its stress tests. The Greeks have implemented their first austerity measures with some success.
The fevered predictions of the early summer that the euro was doomed, and that Europe’s sovereign-debt crisis would rip through countries such as Spain and Portugal like a virus, have been forgotten. The crisis appears to be over.
Don’t believe it. Under the surface, the cracks in the euro are getting worse. The imbalances in the euro area are growing all the time. The resistance to the bailout package will rise as the terms turn out to be immoral and absurd. And the big-deficit nations are locked in a downward economic spiral.