Despite the drumbeat of defeatism from English-speaking economists, and despite three years of disappointing economic results, the Eurozone persists in the execution of its original "Plan A", adopted three years ago:
1. Balance eurozone government budgets by raising taxes and reducing expenditure.
2. Improve external competitiveness with internal deflation and market reforms.
3. Stabilize debt ratios through fiscal consolidation and the (eventual) resumption of economic growth.
4. Prevent speculative attacks and restore market access with credible long-term policies, backstopped by the ECB and the ESM.
5. Remove "exit risk" by the ECB's pledge to buy government bonds in the event of stress.
Now is an opportune moment to assess where "Plan A" stands with respect to probability of ultimate success. At present, all of the troubled countries (except Cyprus) are either in compliance with Troika agreements, or are otherwise implementing (or pretending to implement) fiscal consolidation and structural reform.
The bond market's reaction to progress to date has been positive, with yields declining and limited issuance resuming for a number of peripheral countries. The ESM has not had to make new loans (besides Greece), and the ECB has not had to intervene in the bond market. In the hierarchy of world crises, Europe appears to be moving to the back-burner, outside the spotlight of daily headlines and TV news bulletins.
Is there anything wrong with this picture? Yes, it's completely delusional. The eurozone's financial arithmetic continues to head inexorably in the wrong direction.