The eurozone survives one more year

Stephen Walt did a year-end roundup of 2013 events in the form of The 2013 Stories That Never Were Foreign Policy 12/26/2013. Number 3 on his list is this:

"Europe Gives Up the Euro." Nope. Didn't happen. Not in 2012, and not this year either. No country left the Eurozone; in fact, a few countries still want to get in. Go figure. Of course, nobody offered up a credible long-term solution to the Eurozone's economic difficulties either, or explained how a bunch of sovereign states could share a common currency without a common tax system and fiscal policy, or much greater labor mobility. But let's be thankful for small favors: So far, the Band-Aids are sticking.

And Wolfgang Münchau doubles down this week on his First World War/1914 analogy (Euro-Krise und Erster Weltkrieg: Das Undenkbare durchdenken Spiegel Online 01.01.2014):

Hier sind die Parallelen offensichtlich. Der Euro gab uns scheinbare Stabilität, deren Gleichgewicht ins Wanken gekommen ist. Und alle versuchen, die Probleme mit ihrer nationalen Brille zu erklären. Heute droht kein militärischer Krieg. Es ist die nachhaltige historische Leistung der Europäischen Union, genau das verhindert zu haben. Aber es droht das wirtschaftliche Äquivalent:

• Lange anhaltende Instabilität;
• eine hohe lang anhaltende Arbeitslosigkeit in den Ländern der europäischen Peripherie;
• eine verlorene Generation junger Menschen, die auf absehbare Zeit schlechte berufliche Aussichten haben;
• soziale Spannungen und politische Radikalisierung.

[Here the parallels are clear. The euro gave us apparent stability, whose balance is tottering. And everyone is trying to explain the problems with their own national glasses. Today no war is threatening. It is the enduring historical service of the European Union to have prevented precisely that. But the economic equivalent threatens:

• Long enduring instability;
• high and long-enduring unemployment in the countries of the European periphery;
• a lost generation of young people that for the foreseeable future have a bad career outlook;
• social tensions and political radicalization.]

Even Merkel herself acknowledges that the problem isn't over: "wir sind noch nicht über den Berg" "We're not out of the woods yet." (Severin Weiland, Große Koalition 2014: Merkels Risiko-Agenda Spiegel Online 01.01.2014)

Amazingly, Latvia is entering the currency zone. The Very Serious People's toxic conventional wisdom continues to gain knew recruits.

And as Weiland reports, Greece's debt currently stands at 176% of Greek GDP. It's an unsustainable level and will require a big haircut. It's going to be another high-risk year for the eurozone.

Tags: angela merkel, austerity economics, eu, euro, european union, greece