EVERY now and then on Twitter, people used to link to a rather funny image about the Eurozone crisis. It was a circular chart with these steps going round and round in perpetuity: Crisis deepens –> Announcement of meeting to solve everything (stocks rise) –> Summit (stocks peak) –> Announced solution (champagne party) –> Solution has no substance or won’t work (stocks fall) –> Crisis deepens. Et cetera.
And for a while this really was how things panned out. Hence the bloc’s political leaders were pilloried for doing no more than kicking cans down their archetypal European boulevards.
Then Super Mario Draghi came along and managed, almost inexplicably, to soothe everyone’s jitters with three little words. Pledging to do “whatever it takes” to save the single currency, the Italian ushered in a new era of calm that held its nerve for two whole years.
Until yesterday, that is, when Espirito Santo’s strife prompted Portuguese bonds to take a late-morning dip, sending tremors through global markets. Suddenly those investors who aren’t on their summer holidays were faced with an unwelcome question – is the Eurozone crisis back?
While the answer’s probably “no”, it reminded us of how abruptly and unexpectedly a crisis can be triggered. It’s also a timely reminder of how naive it is to think all is rosy in euroland.
The Eurozone is still home to fragile banks that are exposed to fragile economic fundamentals. Balance sheets contain dark patches of uncertainty. One key story of 2014 so far is the fear that the currency’s problems have shifted from the periphery to the core. The economic positions of France and Italy in particular are, frankly, abysmal. Debts are huge, growth is sluggish, and austerity provokes angry protests.
Another summer of discontent? We’ll have to wait and see. But one thing’s certain – the euro’s problems are not over yet.