The end of the euro crisis?

Prophecies of EU economic doom have subsided but southern Europe's growth and debt problems loom

Topics: GlobalPost, European Financial Crisis, European Union,

The end of the euro crisis? Managing Director of the International Monetary Fund Christine Lagarde (Credit: AP Photo/Virginia Mayo)
This article originally appeared on GlobalPost.

BRUSSELS, Belgium – Remember the euro crisis?

Global PostIn the past two weeks, the seemingly endless prophesies of doom for the European economy have fallen eerily silent.

European stocks climbed to an eight-month high Friday, pressure is easing on Italian bonds, Greece has disappeared from front pages.

“The world economy has stepped back from the brink,” Christine Lagarde, head of the International Monetary Fund, told an audience in Beijing over the weekend. “We have cause to be a little bit more optimistic.”

The immediate risk of catastrophe has receded, but the euro zone is far from finding its way out of the woods — and the big bad wolf of currency collapse is still lurking among the trees.

Behind the cautious optimism lie several worrisome possibilities.

Portugal might still be forced into a Greek-style default. Greece could still backslide after its impending elections. The frontrunner in France’s presidential election wants to pick apart new rules on fiscal discipline.

Soaring oil prices may still drag the euro zone recession down to unsustainable levels, and southern Europe’s inability to generate growth could vanquish all efforts to stem those countries’ rising debt.

Lagarde is painfully aware of other false dawns since the euro crisis began three years ago. “Optimism should not give us a sense of comfort or lull us into a false sense of security,” she added.

In the past four months, the euro zone has taken serious action to halt the crisis.

The European Central Bank’s December decision to pump money into the banking sector through 1 trillion euros of cheap loans staved off the threat of a crippling credit crunch and pulled the euro zone back from the abyss.

Meanwhile, new Spanish and Italian governments began to implement market-reassuring economic reforms.

Then, early this month, European Union leaders finally agreed on a second, 130 billion euro bailout for Greece that combined with a 100 billion euro “haircut” for private investors to ease the short-term danger of a Greek meltdown.

French President Nicolas Sarkozy announced the euro zone had turned a corner and the worst of the crisis was over. For once, markets seemed reassured and pressure on the euro zone periphery bonds has eased.

But many fear that the crisis could just be on hold.



“Greece’s debt situation is as unsustainable as ever; so is Portugal’s; so is the European banking sector’s and so is Spain’s,” the influential Financial Times commentator Wolfgang Munchau wrote Monday. “The worst, I fear, is yet to come.”

Southern Europe’s moribund growth is rooted in the long-term decline of competitiveness in countries like Italy, Spain and Portugal. Reforms to free up labor markets, cut business costs and slash red tape could pay off in the long term. But right now, austerity measures to bring budgets down are compounding the no-growth problem.

Greece’s economy is set to contract for the fifth successive year with a 4.4 percent drop in 2012. Portugal’s will drop by 3 percent, Italy’s by 1.3 percent and Spain’s by 1 percent.

U.S. Treasury Secretary Timothy Geithner on Tuesday praised efforts by southern European governments to get their finances in order, but warned they also needed to stimulate growth to prevent a prolonged recession that will keep them mired in debt.

“Reforms will take time and they will not work without financial support,” Geithner told lawmakers in Washington. Without stimulus, he cautioned that Europe could sink into “a self-reinforcing negative spiral of growth-killing austerity.”

Geithner also complained that “in Europe today there is no mechanism for fiscal transfers to help cushion economic shocks.” That means Germany and other rich euro zone nations aren’t spending enough to help the south.

Throughout the crisis, Chancellor Angela Merkel has sought to limit German payouts to the minimum needed to keep the likes of Greece from going under.

More generous ideas such as euro bonds to spread the burden of debt or a Marshall Plan-inspired investment package to spur growth have received a firm “nein.”

There are signs however, that the Germans might be persuaded to take a softer line. Merkel has hinted she may be prepared to drop opposition to increasing the size of the euro zone’s firewall fund to around 700 billion euros.

That could provoke a rift with her government coalition partners — the Free Democratic Party. However, with the FDP slipping in polls, some observers think Merkel may be preparing to ditch them to form a “Grand Coalition” with the opposition Social Democrats, who are more amenable to helping out southerners.

“The Social Democrats know that what Merkel is doing is not correct,” Javier Solana, a former EU foreign policy chief, said recently in London.

“We are beginning to see a change in the German position,” Solana told the European Council on Foreign Relations. “I think we will see a Grand Coalition again in Germany which will put things in a much more different situation than the one we have today.”

Such a change might just convince hard-pressed southern Europeans that the optimism is justified.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails

    Ten spectacular graphic novels from 2014

    Beautiful Darkness by Fabien Vehlmann & Kerascoët
    Kerascoët's lovely, delicate pen-and-watercolor art -- all intricate botanicals, big eyes and flowing hair -- gives this fairy story a deceptively pretty finish. You find out quickly, however, that these are the heartless and heedless fairies of folk legend, not the sentimental sprites beloved by the Victorians and Disney fans. A host of tiny hominid creatures must learn to survive in the forest after fleeing their former home -- a little girl who lies dead in the woods. The main character, Aurora, tries to organize the group into a community, but most of her cohort is too capricious, lazy and selfish to participate for long. There's no real moral to this story, which is refreshing in itself, beyond the perpetual lessons that life is hard and you have to be careful whom you trust. Never has ugly truth been given a prettier face.

    Ten spectacular graphic novels from 2014

    Climate Changed: A Personal Journey Through the Science by Philippe Squarzoni
    Squarzoni is a French cartoonist who makes nonfiction graphic novels about contemporary issues and politics. While finishing up a book about France under Jacques Chirac, he realized that when it came to environmental policy, he didn't know what he was talking about. "Climate Changed" is the result of his efforts to understand what has been happening to the planet, a striking combination of memoir and data that ruminates on a notoriously elusive, difficult and even imponderable subject. Panels of talking heads dispensing information (or Squarzoni discussing the issues with his partner) are juxtaposed with detailed and meticulous yet lyrical scenes from the author's childhood, the countryside where he takes a holiday and a visit to New York. He uses his own unreachable past as a way to grasp the imminent transformation of the Earth. The result is both enlightening and unexpectedly moving.

    Ten spectacular graphic novels from 2014

    Here by Richard McGuire
    A six-page version of this innovative work by a regular contributor to the New Yorker first appeared in RAW magazine 25 years ago. Each two-page spread depicts a single place, sometimes occupied by a corner of a room, over the course of 4 billion years. The oldest image is a blur of pink and purple gases; others depict hazmat-suited explorers from 300 years in the future. Inset images show the changing decor and inhabitants of the house throughout its existence: family photos, quarrels, kids in Halloween costumes, a woman reading a book, a cat walking across the floor. The cumulative effect is serene and ravishing, an intimation of the immensity of time and the wonder embodied in the humblest things.

    Ten spectacular graphic novels from 2014

    Kill My Mother by Jules Feiffer
    The legendary Pulitzer Prize-winning cartoonist delivers his debut graphic novel at 85, a deliriously over-the-top blend of classic movie noir and melodrama that roams from chiaroscuro Bay City to Hollywood to a USO gig in the Pacific theater of World War II. There's a burnt-out drunk of a private eye, but the story is soon commandeered by a multigenerational collection of ferocious women, including a mysterious chanteuse who never speaks, a radio comedy writer who makes a childhood friend the butt of a hit series and a ruthless dame intent on making her whiny coward of a husband into a star. There are disguises, musical numbers and plenty of gunfights, but the drawing is the main attraction. Nobody convey's bodies in motion more thrillingly than Feiffer, whether they're dancing, running or duking it out. The kid has promise.

    Ten spectacular graphic novels from 2014

    The Motherless Oven by Rob Davis
    This is a weird one, but in the nervy surreal way that word-playful novels like "A Clockwork Orange" or "Ulysses" are weird. The main character, a teenage schoolboy named Scarper Lee, lives in a world where it rains knives and people make their own parents, contraptions that can be anything from a tiny figurine stashable in a pocket to biomorphic boiler-like entities that seem to have escaped from Dr. Seuss' nightmares. Their homes are crammed with gadgets they call gods and instead of TV they watch a hulu-hoop-size wheel of repeating images that changes with the day of the week. They also know their own "death day," and Scarper's is coming up fast. Maybe that's why he runs off with the new girl at school, a real troublemaker, and the obscurely dysfunctional Castro, whose mother is a cageful of talking parakeets. A solid towline of teenage angst holds this manically inventive vision together, and proves that some graphic novels can rival the text-only kind at their own game.

    Ten spectacular graphic novels from 2014

    NOBROW 9: It's Oh So Quiet
    For each issue, the anthology magazine put out by this adventurous U.K.-based publisher of independent graphic design, illustration and comics gives 45 artists a four-color palette and a theme. In the ninth issue, the theme is silence, and the results are magnificent and full of surprises. The comics, each told in images only, range from atmospheric to trippy to jokey to melancholy to epic to creepy. But the two-page illustrations are even more powerful, even if it's not always easy to see how they pertain to the overall concept of silence. Well, except perhaps for the fact that so many of them left me utterly dumbstruck with visual delight.

    Ten spectacular graphic novels from 2014

    Over Easy by Mimi Pond
    When Pond was a broke art student in the 1970s, she took a job at a neighborhood breakfast spot in Oakland, a place with good food, splendid coffee and an endlessly entertaining crew of short-order cooks, waitresses, dishwashers and regular customers. This graphic memoir, influenced by the work of Pond's friend, Alison Bechdel, captures the funky ethos of the time, when hippies, punks and disco aficionados mingled in a Bay Area at the height of its eccentricity. The staff of the Imperial Cafe were forever swapping wisecracks and hopping in and out of each other's beds, which makes them more or less like every restaurant team in history. There's an intoxicating esprit de corps to a well-run everyday joint like the Imperial Cafe, and never has the delight in being part of it been more winningly portrayed.

    Ten spectacular graphic novels from 2014

    The Shadow Hero by Gene Luen Yang and Sonny Liew
    You don't have to be a superhero fan to be utterly charmed by Yang and Liew's revival of a little-known character created in the 1940s by the cartoonist Chu Hing. This version of the Green Turtle, however, is rich in characterization, comedy and luscious period detail from the Chinatown of "San Incendio" (a ringer for San Francisco). Hank, son of a mild-mannered grocer, would like to follow in his father's footsteps, but his restless mother (the book's best character and drawn with masterful nuance by Liew) has other ideas after her thrilling encounter with a superhero. Yang's story effortlessly folds pathos into humor without stooping to either slapstick or cheap "darkness." This is that rare tribute that far surpasses the thing it celebrates.

    Ten spectacular graphic novels from 2014

    Shoplifter by Michael Cho
    Corinna Park, former English major, works, unhappily, in a Toronto advertising agency. When the dissatisfaction of the past five years begins to oppress her, she lets off steam by pilfering magazines from a local convenience store. Cho's moody character study is as much about city life as it is about Corinna. He depicts her falling asleep in front of the TV in her condo, brooding on the subway, roaming the crowded streets after a budding romance goes awry. Like a great short story, this is a simple tale of a young woman figuring out how to get her life back, but if feels as if it contains so much of contemporary existence -- its comforts, its loneliness, its self-deceptions -- suspended in wintery amber.

    Ten spectacular graphic novels from 2014

    Through the Woods by Emily Carroll
    This collection of archetypal horror, fairy and ghost stories, all about young girls, comes lushly decked in Carroll's inky black, snowy white and blood-scarlet art. A young bride hears her predecessor's bones singing from under the floorboards, two friends make the mistake of pretending to summon the spirits of the dead, a family of orphaned siblings disappears one by one into the winter nights. Carroll's color-saturated images can be jagged, ornate and gruesome, but she also knows how to chill with absence, shadows and a single staring eye. Literary readers who cherish the work of Kelly Link or the late Angela Carter's collection, "The Bloody Chamber," will adore the violent beauty on these pages.

  • Recent Slide Shows

Comments

0 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>