Greek Lessons for Europe

The IMF s Euro Crisis

What Euro Crisis?

Stage Three for the Euro Crisis?

How to Resolve the Euro Crisis

Three New Lessons of the Euro Crisis

The Emerging Economies Eurozone Crisis

Will the Euro Survive the Current Crisis?

The Eurozone s Delayed Reckoning

This distinction between foreign and domestic debt is particularly important in the context of the euro crisis, because eurozone countries cannot devalue to increase exports if this is required to service foreign debt. And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.

A couple of years ago, the eurozone was in the latter situation. That is why European Central Bank President Mario Draghi s pledge to do whatever it takes to save the euro immediately brought the eurozone s debt crisis to a halt.

In the first stage, beginning in the spring of 2008, the locus of the North Atlantic crisis moved from the United States to the eurozone. Banks in the eurozone came under pressure, and interbank tensions increased.

The Global Roots of Euro Jitters

Eurobonds plus fiscal rules this formula is the euro s best hope for salvation. Unfortunately, another crisis or two might be necessary before European leaders consider it seriously.

While 2011 was supposed to be the year when European leaders finally got a grip on events, the eurozone s problems went from bad to worse. What had been a Greek crisis became a southern European crisis and then a pan European crisis.

Europe is our number one priority stabilizing the eurozone and resolving its current crisis are essential to stability and economic recovery in France.

The Perilous Politics of the Euro

So, why is there a eurozone crisis, and what defines it? Time and again, it is argued that the single currency does not fit the different needs of its member countries, and that unsustainable economic divergence will ultimately require that the euro be abandoned.

As long as the EU s life threatening political crisis continues, its financial crisis will continue to destabilize it. At the heart of resolving the crisis lies the certainty that the euro and with it the EU as a whole will not survive without greater European political unification.

NEW YORK A comprehensive solution of the euro crisis must have three major components reform and recapitalization of the banking system, a eurobond regime, and an exit mechanism.

One example is Eurobonds, which Merkel has declared taboo. Yet they are the obvious solution to the root cause of the euro crisis, which is that joining the euro exposed member countries government bonds to the risk of default.

In terms of addressing the eurozone financial crisis, however, the agreement reached in Brussels was anything but a breakthrough, because it never transcended the logic of narrow crisis management. It offers no strategy for overcoming the crisis in the south of Europe, which means that the threat to the eurozone has not been removed.

MUNICH The euro has brought a balance of payments crisis to Europe, just as the gold standard did in the 1920s. In fact, there is only one difference between the two episodes During today s crisis, huge international rescue packages have been available.

The latest agreement did halt, or at least interrupt, the eurozone s biggest crisis to date, culminating in an unprecedented period of antipathy, opprobrium, humiliation, pestering, and blackmail within Europe. Indeed, Greece came within a hair s breadth of leaving the eurozone.

The eurozone sovereign debt crisis appears to have been the worst managed financial crisis since Argentina s default in 2001. The European Union and eurozone leaders have seriously discredited themselves.

PARIS For three years, the euro crisis has threatened not only to unravel the eurozone, but to bring down the entire European Union with it. Although the pressure from financial markets has moderated, for now, a long term resolution to the crisis remains an existential priority for the EU.

That is where the eurozone is today. A debt crisis that erupted in Greece, the eurozone s outer periphery, has migrated with a vengeance towards the core, so much so that the survival of the eurozone itself is at stake.

The euro is not overvalued or poorly managed, which would undermine competitiveness and erode confidence in the currency s long term stability. On the contrary, the remarkable resilience of the euro s exchange rate vis à vis all other major currencies demonstrates enduring faith in the euro s viability and stability.

In 2011, Europe s foundations began to tremble, as the eurozone s sovereign debt crisis, set in motion by the global financial and economic crisis that erupted in 2008, moved from the eurozone s periphery to its core countries. The EU s resilience indeed, its very survival is being called into question at a time of profound geopolitical transformation, in which a stronger Europe is essential.

During the euro crisis, power in the European Union seems to have shifted towards national capitals in general, and towards one national capital in particular Berlin. But, with Germany introverted, France downgraded, and Britain semi detached, the big story in European foreign policy is that the time has come for the little guy who thinks big.

While markets remained calm, the Cyprus crisis revealed the full extent of the political disaster that the eurozone crisis has wrought the European Union is disintegrating at its core. Europeans current crisis of confidence concerning Europe is far more dangerous than renewed market anxiety, because it cannot be overcome with another liquidity injection by the ECB.

But it was never intended to do that. Instead, the euro achieved what it was meant to achieve the crisis was contained, because it could not inflict damage on foreign exchange markets within the euro area.

The Eurozone s Last Stand

The euro crisis had its origin in German Chancellor Angela Merkel s decision, taken in the aftermath of Lehman Brothers default in September 2008, that the guarantee against further defaults should come not from the European Union, but from each country separately. And it was German procrastination that aggravated the Greek crisis and caused the contagion that turned it into an existential crisis for Europe.

From Constitutional Crisis to European Crisis

One of the problems that had made the crisis more difficult after 1982 was the US dollar s appreciation. Likewise, today s euro crisis is harder to resolve because of the euro s strength in currency markets.

The euro crisis is a complex mixture of banking and sovereign debt problems, as well as divergences in economic performance that have given rise to balance of payments imbalances within the eurozone. The authorities did not understand the complexity of the crisis, let alone see a solution.

NEW YORK Financial markets abhor uncertainty that is why they are now in crisis mode. The governments of the eurozone have taken some significant steps in the right direction to resolve the euro crisis but, obviously, they did not go far enough to reassure the markets.

MUNICH The eurozone is now in its sixth year of crisis and of efforts by the European Central Bank and the international community to end it. Policymakers are becoming ensnared in a creeping interventionism that, as British Prime Minister David Cameron has put it, may alter the eurozone beyond recognition and violates Europe s basic economic and political rules.

After all, if one takes the average of estimates reported by reputable sources, the write off losses of the six crisis countries banks amount to about 670 billion. Participating in these write offs would put huge strain on the Eurosystem (the ECB and the central banks of the eurozone member states), which has only around 500 billion in equity capital.

BERKELEY The first two components of the euro crisis a banking crisis that resulted from excessive leverage in both the public and private sectors, followed by a sharp fall in confidence in eurozone governments have been addressed successfully, or at least partly so. But that leaves the third, longest term, and most dangerous factor underlying the crisis the structural imbalance between the eurozone s north and south.

The consensus view among economists and policymakers is that the financial crisis and the euro crisis have damaged both demand and supply, but that a gradual healing process has begun.

A Eurasian Solution for Europe s Crises

The announcement of the OMT scheme in July 2012 reduced interest rates for companies and governments alike and returned much needed private capital to crisis hit countries, thereby helping to soften the blow of the deep recession on Europe s periphery. It also brought back that scarcest of assets confidence in the viability of the eurozone economy and its currency, the euro.

The Crisis Europe Needs