Last Thursday, the head of the European Central Bank said he'd do "whatever it takes" to save the euro, and euphoria swept across the land. But there's a real chance that Mario Draghi overpromised, and his plan to save the euro won't actually come to fruition.
It's been a gruesome week for the euro zone. But now here comes Mario Draghi, the head of the European Central Bank, with a pledge to "do whatever it takes" to save the euro. Why is that so significant? Because he's the one person who could actually put a stop to the crisis.
Does the euro zone really need another week of crisis? Not really. But it's getting one anyway. Spain's financial markets are tanking. And, in the meantime, both Germany and the IMF sound like they're getting ready to kick Greece out of the euro.
Back in June, it looked like the E.U. summit had quieted down the euro crisis. So much for that. On Friday, Spain's financial markets started imploding. So what went wrong? Spain got two pieces of bad news that highlight everything that's flawed about the euro zone.
Is it time to start worrying about Europe once more? On Thursday, Spain found itself struggling to borrow money from investors yet again. Yields on the country's 10-year bonds hit 7 percent. Alarming headlines ensued. That's right, it's that scary number again! So why does 7 percent always lead to panic?
Once again Spain is turning to austerity to try to solve its deficit woes--despite the fact that many economists don't think this will work. So why bother? One theory is that Spain's trying to signal to Germany that it's willing to endure enough pain to make European integration feasible.
A new study uses some clever detective work to estimate the size of tax evasion in Greece. The results? Avoided taxes made up somewhere between one-third and one-half of the Greek budget deficit in 2008 and 2009--a shortfall that precipitated the euro crisis and, in turn, put the global economy on edge.
Most discussions of friction within the euro zone revolve around Germany. Either mighty Germany helps struggling nations like Spain and Italy, the logic goes, or the euro collapses. But Finland also isn't happy about bailing out the rest of the euro zone either. And talk of a possible Finnish exit is starting to heat up.
Lately, financial markets have been optimistic about the future of the euro. But here comes Mario Draghi to remind everyone that as long as economic growth is bad, the euro is in trouble. And the prospects for growth are very bad indeed.
Germany has often opposed many of the ideas proposed to integrate the euro zone and end the crisis. But after the last E.U. summit, there's evidence that German Chancellor Angela Merkel is losing her ability to resist the tide.
Another E.U. summit is kicking off this week, and there's no shortage of ideas to save the euro. But what if the euro isn't worth saving? What if all these ideas are just propping up a doomed currency union? Increasingly, economists--and many Europeans--are starting to take this idea more seriously.
Steven Pearlstein reports, from Rome, on the new paradox of European economic policy: There is no saving the euro without saving Italy, and there is no saving Italy without saving the euro. And both tasks fall in the lap of Mario Monti, Italy's new prime minister.