CAMBRIDGE – The prospects for the euro and the eurozone remain uncertain. But recent events at the European Central Bank, in Germany, and in global financial markets, make it worthwhile to consider a favorable scenario for the common currency’s future.
The ECB has promised to buy Italian and Spanish sovereign bonds to keep their interest rates down, provided these countries ask for lines of credit from the European Stability Mechanism and adhere to agreed fiscal reforms. Germany’s Constitutional Court has approved the country’s participation in the ESM, and Chancellor Angela Merkel has given her blessing to the ECB’s bond-buying plan, despite strong public objections from the Bundesbank. And the international bond market has expressed its approval by cutting interest rates on Italy’s ten-year bonds to 4.8%, and on Spain’s to 5.5%.