Eurozone Debt Crisis: The Calm Before the Storm

Inquiring minds are left wondering just how bad this coming ‘Euro Debt’ storm will be since reading EUbusiness’ “Eurozone Debt Crisis…” The Eurozone is breathing easier these days after taking a relentless pounding from the markets last year. But analysts warn it may just be the calm before another storm for the debt-stricken bloc:

A drive to coordinate the economic and fiscal policies of the 17 nations that share the euro, coupled with plans to boost a debt rescue fund, have helped to ease market fears about the single currency area.

For billionaire investor George Soros, Europe’s debt crisis is “about to be resolved,” although he warned that the new system was also flawed because it would cast in stone divergences between strong and fragile economies.

“There is now a determination to make up the missing element, which is a common fiscal policy or a common treasury,” Soros told a security conference in Munich, Germany, last Friday.

European Union president Herman Van Rompuy boasted on Tuesday that the measures taken by governments last year were “clearly paying off.”

However, a darker side is seen by economists.

Economists, however, see storm clouds on the horizon in the form of banks exposed to bad investments and a new chapter in the Greek drama.

“The sovereign debt crisis is far from being resolved,” said Morgan Stanley Research analysts, pointing out that “most measures taken so far only provide liquidity” — enough to keep the system afloat but not resolve the underlying problems.

They said some decisions already taken “even constitute a step change in the economic governance of the euro area but they are not a silver bullet to end the sovereign debt crisis once and for all.”


But eurozone countries have voiced deep reservations about elements of the Franco-German pact, with divisions sure to resurface when finance ministers gather for two days of detailed talks from Monday.

Some economists remain unconvinced too.

Royal Bank of Scotland’s Silvio Peruzzo insisted: “If you look at the fundamental issues, none … has been addressed or solved.

“They all remain in the periphery — the dynamics of the debt sustainability, the low growth environment.”

He added that Spain still had to “fully” address its banking sector’s problems.

Andre Sapir, a Brussels policy analyst at the Bruegel Institute, said Europe was far from turning the last page on the Greek debt tragedy.

“There is little likelihood that Greece can emerge solvent,” he said, warning that “one day or another, we will have to reduce the Greek debt.”

This economic analysis contains very specific criticisms of Eurozone debt policy portending a high probability of happening.


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