"I'm a loser baby, so why don't you kill me?" - Beck Hansen
When Beck wrote the lyrics for his 1994 hit song Loser (covered on the TV show Glee), the euro didn't exist. It was still the fancy of European technocrats who wanted to unite the world's biggest trading bloc under a single currency. Today, Loser could be the rallying cry of the anti-euro mob whose dream is to see the currency propped against a wall in Frankfurt, home of the European Central Bank, and executed in a hail of deutsche marks, francs, liras, drachmas, pesetas and escudos.
Who are the euro skeptics and outright haters? Almost half of all Germans (according to recent polls), who resent seeing two epically mismanaged economies - Greece and Ireland - plugged into an IV of cheap-interest loans; the small army of economists and strategists, many of them members of the Schadenfreude Club, North American chapter, who think the currency can't possibly work in a two-speed continent; and the growing number of workers in Portugal, Ireland, Greece and Spain (the so-called PIGS) who want their old currencies revived so they can devalue their way to prosperity in a hurry instead of the alternative - a gruesome decade of wage deflation.
Bad news for the euro's would-be assassins: This bloodied, battered currency still has a lot of fight left in it. That's because the political and economic will to keep it alive still exceeds the will to kill it off. Here's what the sorry beast still has going for it:
Cutbacks are working: Every country in the 16-nation euro zone has austerity programs in place, ranging from the mild (Germany) to the monstrous (Greece and Ireland, with Portugal and Spain not far behind in the marathon of pain). The programs may be a year or three late, but they are producing results. The euro zone's collective budget deficit in 2011, as a percentage of gross domestic product, is forecast at 4.6 per cent, down from 6.3 per cent this year. That's still beyond the euro zone's theoretical 3-per-cent limit, but is positively rosy compared with the 2011 deficit figures for the United States (8.9 per cent) and Japan (6.4 per cent).
Hypocrisy, thy name is Germany, France and Italy: One of the euro zone's key support structures, the Stability and Growth Pact (SGP), was supposed to limit national deficits to 3 per cent of GDP and debt to 60 per cent of GDP. Its spectacular failure opened the door to the Great Debt Crisis. Greece's deficit this year is 9.6 per cent, Ireland's a jaw-dropping 32 per cent. Who to blame? Greece and Ireland, to be sure, for serial feckless behaviour, but also Germany, France and Italy. About five years ago, the unholy trinity decided the SGP was overly restrictive, though cynics suggested their political leaders simply wanted to open the spending spigots to help reassure their re-elections. In the end, the SGP was diluted to the point of uselessness. The euro zone's biggies have to lead by example and they didn't. Having in effect encouraged reckless behaviour in the lesser countries, they have no choice now but to exercise patience while the lessers repair themselves.
What's bad for Greece is good for Germany: In early 2008, just before the financial crisis hit markets with a thermonuclear intensity, the euro peaked out at $1.60 (U.S.). It's now about $1.33, thanks in good part to the Greek- and Irish-inspired debt disasters, and could easily go lower. Germany may not like sponsoring the two countries' bailout packages, but it's loving the sinking euro. Driven by surging exports, Germany has recovered with remarkable speed; its GDP growth, at 3.7 per cent this year, is the euro zone's highest and better than that of the U.S. or Japan. The value of German exports is back to precrisis levels. So when Germans moan about Greece, they are only half serious.
The relative calm: Public backlash against budget cutbacks is any politician's nightmare. Social unrest can weaken government resolve to push austerity programs to completion. In extreme cases, they can lead to paralyzed economies and deadly violence, as Athens saw in May when three people were killed in a bank bombing. But predictions for endless strikes and mayhem have so far proved unfounded. How to explain this? Perhaps it's because the social safety nets are still in place, meaning the jobless can still keep a roof over their heads. If the relative calm stays put, so will the austerity efforts.
The China syndrome: Hu Jintao, China's President, has been a frequent visitor to Europe and he wasn't shopping for Brioni suits or BMWs. During a recent visit to Portugal, he promised "concrete measures to help Portugal overcome the global financial crisis." Earlier, he said China would buy Greek bonds. A failed euro zone would sink the world's biggest market. You can bet China has a vested interest in keeping it afloat.
Eric Reguly