Just in case you thought the Euro crisis was ending any time soon…Angela Merkel has provided us with a timeframe in which to expect a resolution – 5 years. This weekend she said:
Mrs Merkel said that though Europe was on the right path to overcome the crisis, she added: “Whoever thinks this can be fixed in one or two years is wrong.”
“We need a long breath of five years and more,” she told a conference in Sternberg, Germany. “We need rigor to convince the world it’s worth investing in Europe.”
The Euro crisis will remain a huge risk to the global economy. And unfortunately, this sort of leadership isn’t helping matters. The solvency crisis at the national level will continue as long as these countries can default on the currency they can’t create. The interesting evolution of this crisis will be the political will behind austerity and the ECB’s actions. Austerity clearly isn’t generating an economic recovery. And the ECB is barely holding things together with their implicit backing of government bonds. These countries clearly aren’t going to grow their way out of their debt problems. That creates a substantial risk of two things:
- A lack of political will to continue the ECB’s actions.
- A serious risk of public uprisings.
Five years is a long time to expect these matters to continue without a substantial change in policy direction….