BRUSSELS — European leaders have fought for two years to return their financial markets to normal, confronting a debt crisis that could ultimately imperil the common euro currency.
But the deepening travail has revealed that what was thought normal is no longer realistic. Instead, even if the euro survives, the euro zone could be facing a long period much like the past two years — slow growth, flagging confidence among investors and a doomed struggle by countries such as Greece to keep up.
European leaders this weekend are convening another meeting to address the problems, which are among the chief risks to the global economy. This is the third such gathering since late 2009, when concerns erupted about a possible default by the Greek government on its government bonds. If the prior meetings are any guide, European leaders may succeed in tamping down the crisis for now.
But as finance ministers from the euro nations began deliberations in Brussels on Friday, hopes for the type of ambitious action urged by U.S. officials and some others seemed to be fading. The best hopes for the euro project itself may have faded, as well.
“The whole system thought you could get something for nothing — once you get the euro it is beautiful . . . ” said Andre Sapir, an analyst at the Bruegel think tank here.
For much of the past decade, the common currency made many investors think that all of the euro zone’s members were an equally safe bet. So even highly indebted countries such as Italy and Greece could borrow money at rates not much different from that of Germany, the engine of European economic growth. But now, Sapir is among those who doubt that anything the region’s leaders do — short of basic changes in the treaty underpinning the euro — will bring back those days.
“Is it possible to turn the corner without a new treaty, a new contract? Is it possible to solve the problem of confidence within the existing rules? That is a fair question,” Sapir said.
A recent IMF report said that financial stress in countries such as Greece, Portugal and Spain may be permanent and will leave Europe divided into economic tiers. The healthiest tier, which could include Germany and some fiscally strong neighbors, would be able to borrow cheaply and compete effectively in the world economy. The others may face interest rates more akin to a developing country and struggle to stay afloat.
Italian and Spanish bond rates have risen to more than 5 percent, more than double that of Germany. The programs being debated in Brussels are meant to bring those rates down, but many analysts say they doubt that the cheap credit of the euro’s early years will ever return. During the past two years, investor faith in Greece, Ireland and Portugal grew so dim that the nations could not borrow money at affordable rates and had to resort to emergency financing from their neighbors and the International Monetary Fund.
Differences in borrowing costs “are here to stay in the countries currently under pressure. And they might still increase from their current level in other countries,” the IMF said in a recent review of the euro area.
The Post Most: BusinessMost-viewed stories, videos and galleries int he past two hours
World Markets from
Other Market Data from
Key Rates from
Loading...
Comments