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Tuesday, September 16, 2014

Is The Euro Crisis Really Over?

The euro zone crisis is not back --, at least not yet it isn’t. The “mini turmoil” in global financial markets that followed rising concerns about Portugal’s Banco Espirito Santo produced an immediate knee jerk reaction on the part of many observers: is it back? It in this case is, of course, the Euro Area sovereign debt crisis. Such a conclusion would be premature, even if it would be just as unwise to start to think that the day won’t come when it really is. The exaggerated reaction had as much to do with market nerves after a long spell of repressed volatility as it did with the sorry state of the Portuguese bank’s balance sheet. Despite the current calm, everyone knows that market volatility – more pronounced variations in the value of financial instruments - will return one day, and no one wants to be caught on the back foot when it does finally arrive. Naturally the dramatic shift in market perceptions of Southern Europe which has taken place since the height of the crisis has surprised many.

For some the level of investor appetite for shares and bonds in what was previously deemed an economic disaster zone is a sure sign another bubble is on the way, this time in government bonds . For others it is proof that the debt crisis is now well behind us, and indeed that the most seriously affected economies have now “turned the corner” . The question this book addresses is the extent to which either of these views is valid. There is no doubt that both the countries concerned and the Euro Area itself have made significant institutional advances during the crisis. But has enough been done, or have one can after another simply been kicked down the road? Certainly the unresolved issues are not hard to identify: low GDP growth, rising sovereign debt levels, creeping deflation, how to handle the problem of ageing and declining workforces. So there plenty of potential sources for more crises, the issue is whether the will to address them before something happens exists or whether the driver will, yet one more time, fall asleep at the wheel.

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These arguments are developed at greater length in my new book "Is The Euro Crisis Really 0ver? - will doing whatever it takes be enough" - on sale in various formats - including Kindle - at Amazon.