The Euro – more good news than bad

Earlier this year, The Economist asked their readers on-line to weigh into a debate on whether or not “the euro area will fragment in the next 10 years”. 62 percent of the readers believed it would not, but a figure as high as 38 percent believed it would. Obviously, the economic situation in countries such as Greece and Spain had a big influence on the debate. Nothing surprising in this, but I would like to highlight three things often missed in the news reports.
• Behind the Greek drama, the everyday workings of both the euro in particular, and European economic policy in general, continue
• The Euro is, in its basic workings, not all that different from the US dollar
• Greece, and other Euro-zone countries, are not alone
Last point first. Yes, the Greek economy has the biggest problems if you combine the three elements of yearly budget deficit, total debt, and lost confidence. But look at the situation in other Euro-countries, and in non-Euro countries in or outside Europe, and you will find situations that are even worse on deficit and debt.
Then, the US comparison. The best piece I have read on this is written by Barry Eichengreen in the Economist debate that I mentioned above. “The coexistence of a single currency and a single central bank with a set of separate state budgets is a fundamental contradiction”, Mr. Eichengreen points out. Meaning the US, not Europe. Witty, if you ask me, but to just discard this as a joke would be unwise. Either we are too complacent over threats to the dollar fabric, or – much more likely – we tend to exaggerate the threats to the Euro.
Finally, the everyday working of the Euro. Estonia is set to enter the final stage of the common currency on 1 January, 2011. Meanwhile, a reform package regulating oversight of financial markets was approved last week, to complement finalized or ongoing negotiations on legal regimes for Capital requirements, Hedge funds, etc. In the backdrop, globally, you have G20 discussions and the new Basel Committee framework decision (“Basel III”). You can debate whether or not the exact right balance has been struck in all details on this, but there is agreement on that things are generally well founded.
So, all in all, good news if you look at the whole picture. And far from the general picture painted in US and European media, of a fragmented and troubled Europe vs. a stable and strong America.