1st June 2012
It is initially difficult to see any redeeming conclusions to be drawn from the crisis situation of last week, but Kirkegaard argues that Spain finally owning up to the problems in its banking sector is a step forward. Equally, he welcomes the prospect of a new 'Grand coalition' in Germany
"As Chancellor Angela Merkel begins the political horse trading necessary to pass the Fiscal Compact and ESM treaties with a super majority in the full German parliament, her Christian Democrats and the Christian Social Union allies engaged for the first time with the Social Democrats (SPD) over a proposal from last year for a European Redemption Fund (ERF) as proposed by a team of German "wise men." The fund would convert euro area government debt in excess of 60 percent of GDP into de facto eurobonds."
He also highlights the informal European Council session last week, which "marked another policy step towards integration similar to the signing of the Fiscal Compact Treaty earlier this year". He draws the optimistic conclusion: "It is often said that the long-term viability of a political entity is dictated by the vigor of its arguments over fundamentals, including the design and role of its government institutions and the directions of its values. That is often said of the United States.
"A closer look behind the surface squabbles, at what is actually going on in the euro area, makes this author optimistic over its future."
In this Kirkegaard is in a minority. Far more common are headlines such as this one on Reuters. The Greek exit is going to be a nightmare, other countries will follow slavishly, Spain will default, and so the gloom mounts.
Some see some positives from a Greek exit, such as Larry Elliot in the Observer, who believes that Greece has much to learn from the experience of Argentina.
Other commentators have previously suggested that the Eurozone may emerge stronger at the end of the current crisis, including Goldman Sachs' Jim O'Neill. He argued at the end of last year that the weakness in Italy would 'concentrate the minds' of policymakers and force action. By the same rationale, the current crisis should prompt successful policy action. However, repeated crises have yet to produce any lasting solution to the crisis.
Policymakers within Europe remain the only other source of genuine optimism. Here, respected Eurocrat Michel Barnier argues that there is a way the Eurozone can emerging stronger from the crisis.
Of course, much depends on the will of the people for closer European integration. In this, the Irish referendum will be a real test of popular opinion. If there is sufficient public appetite for closer ties within the Eurozone, there is a chance that the crisis may have forced the single currency to its natural conclusion – full monetary and fiscal union.
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