Steering Clear of the Euro Precipice

Renewed turbulence in the eurozone bond market underlines the need to reappraise current policies for overcoming Europe’s sovereign-debt crisis. Given Europe’s current political balance, and taking into account its time-honored tradition of muddling through, several minimum requirements stand out.

ATHENS – Renewed turbulence in the eurozone bond market underlines the need to reappraise the policies now being pursued in order to overcome Europe’s sovereign-debt crisis. Indeed, the recent election results in France and Greece, reflecting a much broader anti-austerity mood, leave Europe’s authorities with little choice.

The European Union, the European Central Bank, and private-sector lenders have spent more than €1 trillion over the past two years, but the eurozone remains in no better shape today than in the autumn of 2009, when the full scale of Greece’s fiscal problem was revealed. Meanwhile, the eurozone’s recession is deepening and unemployment is rising.

Moreover, skepticism about the eurozone authorities’ and leading powers’ determination and/or competence to ensure the currency’s viability is increasing systemic risk. For example, the European Investment Bank now inserts a drachma clause in its loan deals with Greek enterprises.

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