"Rumors of Europe’s Death Have Been Greatly Exaggerated"     Print

Ever since the creation of the Euro in 1999, it has been fashionable in some quarters to prophesy the failure of Europe’s single currency. As EU Ambassador João Vale De Almeida pointedly noted, economist Milton Friedman had famously predicted that the European currency would not be able to withstand the first real “crisis.”

Addressing Europe’s sovereign debt crisis in a detailed and compelling speech last week in Washington, (Click here for full text.), the Ambassador readily acknowledged that “we’ve certainly had a deep and profound crisis, unprecedented in our generation”.  Indeed, in 2009 real GDP shrank by 4% and over 6.3 million people lost their jobs in the Euro area.

Yet, as 2010 enters its final quarter, it is increasingly evident that the monetary union has withstood the challenge through a combination of central bank initiatives, capital injections of nearly €300 billion and €2.5 trillion in guarantees, and sheer political will.

Furthermore, lessons have been learned. Concrete efforts are underway to strengthen the governance of the euro area, through strengthening of the “corrective arm” of the Stability and Growth Pact and ensuring the  integrated surveillance of the debt dynamics of member states.

Adjudged Ambassador Almeida, the crisis “saw European leaders demonstrate their capacity to work together quickly and decisively to coordinate a policy response that was appropriate to the situation.”  Moreover, it seems to be working.

European Affairs