The eurozone crisis is over that is, if you choose to believe
Jose Manuel Barroso, the president of the European Commission.
Speaking to Portuguese diplomats in Lisbon last Thursday, Mr.
Barroso said that "the perception of risk in the eurozone has
disappeared." The former Portuguese prime minister added, "Investors
have understood that when European leaders commit themselves to
doing everything to safeguard the integrity of the euro, they mean
So, will 2013 be remembered as the year the eurozone crisis came
to an end without the much-predicted collapse of the common
currency, or at least the drop-out of some of its members? Or are
the skeptics right who say that European leaders have only bought
time, and 2013 will be the year eurozone citizens even in the richer
countries feel the painful results of austerity programs, sending
the European economy deeper and deeper into recession?
Barroso is not alone in his positive assessment. Last month,
German Finance Minister Wolfgang Schuble commented on a successful
buy-back of Greek government bonds, saying that the worst of the
crisis was over. And according to a survey by German research group
Sentix, the majority of the European business community shares this
optimism. The number of investors who believe that one or more
eurozone members will have to leave the common currency in 2013 is
now at about 25 percent, which may still seem high, but is actually
down from 33 percent last November.
The man widely credited with this rise in positivity is Mario
Draghi. When the president of the European Central Bank (ECB)
announced last summer that his institute would do all it took to
save the euro, and when the ECB subsequently bought large amounts of
government bonds from ailing economies like Greece, Portugal, and
Spain, it seemed to convince the financial markets that there was no
point in betting on the demise of the common currency.
But critics say the underlying problems are yet to be addressed.
The fundamental one is competitiveness. While sharing the
convenience of a common currency and common interest rates, there
are large differences between the eurozone members in productivity
and labor costs.
The latest ranking of best- and worst-performing nations,
published by the World Economic Forum last year, put Finland at
third place out of 144, Germany at sixth, Portugal at 49th, and
Greece at 96th. It is hard to see how austerity measures alone can
mitigate the divide, even though wage cuts and reduced pensions have
already taken place on a massive scale in Greece, Spain, and
Peter Bofinger, economist at Wrzburg University and one of the
German governments economic advisers, believes that while reforms in
southern European countries are inevitable, Germany, Europes most
powerful economy, needs to do more to help. In fact, it needs to
make itself less competitive.
We need wage increases of five percent and more this year, he
says. We need higher pensions and higher welfare pay-outs. Only if
Germany gets more expensive, if it loses competitiveness relative to
the other eurozone members, we can fix this fundamental flaw in the
construction of the eurozone.
Professor Bofinger, like Barroso and many others within the EU,
is also a strong supporter of eurobonds: debt issued and guaranteed
by the eurozone as a whole, in a measure that would provide cheap
credit for economies like Greece and Portugal which at the moment
cannot raise any money at the financial markets at the cost of the
richer economies. …