Europe’s Crisis Treadmill

May 12, 2014 Barry Eichengreen

The supposed experts who predicted the imminent disintegration of the eurozone have been proved wrong. But it is equally likely that those now declaring that the crisis is over will be proved wrong as well.

BERKELEY – This month marks the fourth anniversary of the May 2010 financial rescue of Greece. Previously, the idea that a eurozone member would seek emergency assistance from the International Monetary Fund, along with the European Commission and the European Central Bank, was unthinkable. The rescue thus marked Europe’s descent into full-blown crisis.

Four years later, European officials are assuring everyone that the crisis is over. The IMF has raised its forecast for eurozone growth this year to 1.2%. Even Greece is forecast to grow by a modest but not insignificant 0.6%.

Bond markets, too, are indicating that the crisis is over. Yields on Irish government bonds have fallen below 3%. Last month, Portugal was able to issue ten-year bonds at 3.57%. Even Greece has been able to sell five-year bonds at rates below 5%.

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0 Comments on this paragraph, 3 Comments on this article

hari naidu May 12, 2014

First, you're a bit more optimistic this time around because you finally understand and accept ECBs conduct with establishment of EU Banking Union and its single supervisory authority.

Second, progress under EU-28 is much more difficult now with UK opting for getting out under Cameron. Why is that American's like you are afraid to take on UK Conservatives?

Third, as usual, ever closer union will take a generation or more (who knows) because EU operates on basis of political consensus by sovereign states. That's a much better political process than diktat from Berlin or (even) Paris.

Fourth, Draghi is likely to surprise ALL you guys with what he finally comes up in June!
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slightly optimistic May 12, 2014

The European Central Bank should act independently? The ECB is surely constrained in a similar way to foreign policy in the EU. The 'Globalist' tells us that if the EU's foreign policy chief had ever said anything beyond what was acceptable to London, Paris or Berlin — "she would have been cut off at the knees".
Isn't the root problem that countries in the West [including the US] are all suffering from a lack of demand for their goods and services?
Incidentally Wall Street's power to keep the grossly inadequate rules for global finance unchanged is the subject of a piece today in the FT.
A new reply to this comment has been posted.
slightly optimistic May 12, 2014

The European Central Bank should act independently? The ECB is surely constrained in a similar way to foreign policy in the EU. The 'Globalist' tells us that if the EU's foreign policy chief had ever said anything beyond what was acceptable to London, Paris or Berlin — "she would have been cut off at the knees".
Isn't the root problem that countries in the West [including the US] are all suffering from a lack of demand for their goods and services?
Incidentally Wall Street's power to keep the grossly inadequate rules for global finance unchanged is the subject of a piece today in the FT.
A new reply to this comment has been posted.

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