Everyone has their opinion on the euro crisis, what caused it, and how it should be fixed. Many people including myself have contended that the euro will fall apart within the next year or two, and that things will have to get worse before they get better.
Still, I'm trying to stay open minded and I came across this article in CNN Money today which argues that the euro will live happily ever after.
Does the euro need to collapse before countries like Greece and Portugal can rebuild? Will the euro currency still be standing a year from today? Here are four reasons why some say the euro will live through this crisis:
- It's too painful to breakup (even for Germany).
- The euro zone hasn't been as hard on Germany as everyone else. German unemployment is at its lowest levels in 20 years, and the euro zone has kept Germany's exports cheap and competitive. "If the ship sinks, all on board, including Germany, will sink with it.
- Euro area voters are risk averse.
- Many of the euro zone voters are rich and aging, so they want to avoid risk. No one likes austerity, but "when a euro crash is potentially imminent, voters will likely agree to the pains of austerity rather than risk the uncertainties of breaking away from the euro zone."
- The euro is innovative and a work in progress.
- The euro has the capacity to innovate new institutions, and in the coming years, it could overcome problems that others deem insurmountable."
- The European Central Bank can handle the crisis.
- The ECB is the lender of last resort, and it has plenty of firepower left for faltering economies. Germany fiercely opposes this idea, but going back to point 1, they may eventually cave in their own best interests. "The ECB can buy a lot more time if needed.
I agree with some of these points, but I'm not totally buying it. I think the list gets less convincing as it goes on.
The second point would make sense if we expected voters to behave rationally. In a time of uncertainty and frustration, I wouldn't be surprised to see many people vote for radical change, even if that means bailing out of the euro zone. The next argument, that the euro "has the capacity to innovate new institutions," is just way too vague. The final point makes sense, but I think this article assumes that throwing more money at the problem is going to fix the fundamental problems permanently, when in fact it's more like the ECB is plugging their finger in the dike. All things considered, I'm still betting the euro collapses within the next two years.
So what do you think? Does the euro stand a chance at surviving? In the long run, would the global economy be better off without it?