Four years after the euro crisis began, says The Economist, the greatest danger is no longer that "an acute financial crisis" could shatter the single currency. Last year European Central Bank (ECB) president Mario Draghi "sedated" markets by promising to buy unlimited amounts of peripheral bonds in an emergency. But now the key worry is that "political instability or paralysis will block" required reforms.
The economy has emerged from recession, and southern European states have improved their competitiveness. But thanks to ongoing austerity and the credit squeeze resulting from the damaged banking system, growth in the south looks set "to remain well below the rates needed to tackle the problems of high unemployment and crippling debt", says Capital Economics. All the more reason, then, to push on with far-reaching changes to labour and product markets to boost growth. But voters, and many politicians, are already running out of patience, and may lack the guts to inflict potentially painful changes on vested interests for the greater good.
Another important step to shore up confidence would be quicker progress towards a banking union. If Europe as a whole could bail out or shore up troubled banks, it should end worries that bankrupt banks could bankrupt governments.
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But progress on this front suffered a setback this week. The legal adviser to EU finance ministers sided with Germany by deciding that the proposed manner of centralising powers establishing a powerful board, essentially was illegal. The upshot? Creating a central banking authority without changing European treaties, which could take years, is looking less and less feasible.
Meanwhile, says the FT, the ECB is due to assess the balance sheets of Europe's banks. This will involve an asset quality review and a stress test, after which struggling banks' capital will be topped up. The hope is that this should alleviate the credit crunch. Given that the eurozone "has a history of botched bank assessments", this test, the first performed by the ECB, had better be convincing. Examining the books of 130 banks, and handling national regulators, many of whom have an incentive to hide the truth to shield taxpayers from future payouts, will be a "nightmare". Europe's crisis may no longer be acute, but it looks chronic.
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