So is the euro crisis over? No — it’s not over until the debt dynamics sing, or perhaps until the debt dynamics sing a duet with internal devaluation. We have yet to see any of the crisis countries reach a point where falling relative wages are generating a clear export-led recovery, or in which austerity is actually paying off in falling debt burdens.
But as a europessimist, I do have to admit that it’s now possible to see how this could work. The cost — economic, human, and political — will be huge. And the whole thing could still break down. But the ECB’s willingness to step up and do its job has given Europe some breathing room.
Posted by Mark Thoma on Wednesday, January 1, 2014 at 10:38 AM in Economics, International Finance |