The Eurozone’s Strength in Disunity

For months, an increasingly frenetic, even apocalyptic, debate about the fate of the euro has been the major driver of global instability. And yet the euro's exchange rate has remained remarkably stable, because, paradoxically, the governance weaknesses that skeptics criticize are what makes the common currency attractive.

FLORENCE – For months, an increasingly frenetic, even apocalyptic, debate about the fate of the euro has been the major driver of global instability. Can Europe’s common currency survive?  No less a figure than former United States Federal Reserve Chairman Alan Greenspan has now declared that it cannot.

But the euro also seems surprisingly resilient in the face of this woe. Unlike in the early summer of 2010, it has been largely stable relative to the dollar on foreign-exchange markets. That stability is puzzling.

Skeptics have plenty of ammunition for their critique of the euro. European governments’ high-level crisis diplomacy and new and ever more complex mechanisms sometimes briefly calm the markets, but the tide of doubt quickly sweeps back in. For a day, or sometimes only for a few hours, traders succumb to the illusion of stability, fueling a euphoric but ephemeral financial-market rally. Then they awaken to the reality that not much has really changed, and that in a few weeks or months the problems will reappear in a seemingly even more intractable form.

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