What Euro Crisis?

European leaders, led by French President Nicolas Sarkozy, declared in May a systemic crisis of the euro, thereby invoking a clause of the EU Treaty intended to help member countries facing the effects of natural disaster. But there is no crisis of the euro, only a search by markets for a new equilibrium on interest-rate spreads – which are still far below pre-euro levels.

MUNICH – Despite huge rescue packages, interest-rate spreads in Europe refuse to budge. Markets have not yet found their equilibrium, and the governments on Europe’s southwestern rim are nervously watching how events unfold. What is going on?

The rescue packages were put together on the weekend of May 8-9 in Brussels. In addition to the €80 billion program already agreed for Greece, the European Union countries agreed on a €500 billion credit line for other distressed countries. The International Monetary Fund added a further €280 billion.

The driving force behind all this was French President Nicolas Sarkozy, who colluded with the heads of Europe’s southern countries. French banks, which were overly exposed to southern European government bonds, were key beneficiaries of the rescue packages.  

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