Which fundamental issues has Europe solved?

Euro bank notes Türkçe: Euro banknotlar

Euro bank notes Türkçe: Euro banknotlar
(Photo credit: Wikipedia)

Economist – The calm that descended in the wake of the European Central Bank‘s flood of cheap, long-term bank lendinghas broken. A trillion euros will buy you about four months, as it turns out. What happens now?

What are the euro zone‘s problems? Primarily:

  • Peripheral workers are uncompetitive and easy routes to devaluation are off the table.
  • Markets therefore question the ability of sovereigns to make good on their debts. In the absence of a lender of last resort to governments, yields rise and fears of insolvency are self-fulfilling.
  • Because governments are individually responsible for domestic banking systems, this leads to fears of banking collapse, which feedback into the growth and debt problems. Without a printing press, governments can’t credibly promise to be bank-lender of last resort without further undermining solvency.

How has the euro area addressed the fundamental problems? The slow, grinding process of internal devaluation is underway but is a long way from completion. There have essentially been no active steps taken to facilitate internal rebalancing. more> http://is.gd/G53exg

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