ANALYSIS
EUROPE
THE INVESTOR
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7
A
fter a torrid summer of all-night negotiations, and
a snap referendum followed by a remarkable volte-face,
the Greek crisis seems to be resolved – at least for the
time being. Existential doubts about the euro are now
heard less often. Even when a Grexit seemed a real
possibility, financial markets remained calm, with little sign this time of
‘contagion’ forcing up the yields on other peripheral countries’ bonds.
The eurozone has again survived intact.There’s nothing surprising
in this for Stuart Mitchell,Managing Partner and Chief Investment
Officer of S.W.Mitchell Capital, who sees the Greek crisis as‘just part
of the ongoing reorganisation of Europe’ and its resolution as‘a crucial
step in making the euro more secure while peripheral countries achieve
competitiveness’. He points out that countries such as Spain and
Ireland, which have taken the harsh medicine of austerity, are nowmore
competitive, their economies growing strongly again.‘There are signs
of dramatic internal devaluation in peripheral countries that increase
their competitiveness while they remain within the eurozone.’And he
notes that a vast majority – including Greece – want to keep the euro.
That the periphery accepted austerity in order to stay in the club
was, he says,‘a key political event’, opening up the possibility that‘in
five years the euro could be one of the world’s strongest currencies’.
Others see the Greek crisis as a different kind of watershed.‘It is
the first time a country has been forced to choose between leaving the
eurozone and accepting what is demanded of them, and the first time
the euro-elites have contemplated leaving a member state behind,’
says Matthias Matthijs,Assistant Professor of International Political
Economy at Johns Hopkins University.
‘That is something fundamentally new,’ he adds.‘A Rubicon has been
crossed. It has made the euro more fragile in the long term.’
So can the eurozone survive as is, or does that depend on embracing
further integration?Wolfgang MÜnchau, a Director at Eurointelligence,
describes the current situation as dysfunctional.‘It depends on decisions
taken in all-night sessions. Creditors and debtors are moving in
opposite directions.Whenever a crisis arises, the leaders of Europe take
up highly nationalistic stands, playing to their domestic audiences. Even
with the EU founder members, France and Germany, there could be
some rupture. Leaders are no longer pushing for a new Europe.’
‘The current set-up in the eurozone is insufficient to prevent future
crises, because when recession puts individual government’s finances
under pressure, there is no mechanism to deal with it and thereby
forestall financial markets, making the pressure more intense,’ says
Professor Paul De Grauwe of the London School of Economics.
The necessary ingredients needed to form a successful currency
union, according to many leading economists, include a single central
By Jonathan Gregson
Reuters
