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The euro zone economy remains mired in an apparently endless gyration between anemic recovery and shallow recession. Last week's weak surveys of purchasing managers were the lowest value since June, 2009, and GDP is still about 1 per cent below the peak level of 2008. After several years of poor growth in GDP, a decline is expected this year.

But the bad news needs to be kept in context, and may be about to taper off.

It could easily have been worse. After all, the single currency is relatively new and the institutions that have had to deal with the existential crisis are hardly united. They've had to cope with a reorganization of the financial system, too.

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To get out of the mire, the euro zone needs stronger institutions. Those seem to be on the way. The European Central Bank's stated willingness to override investors has calmed markets while euro zone governments' willingness to find a way towards banking union and fiscal discipline bring hope for a steadier future.

A sustained recovery also requires the elimination of the intraregional imbalances which brought the region into crisis. The weak economies of the periphery should no longer depend on the stronger economies at the centre for financing their government and trade deficits. But both sets of deficits are shrinking. The International Monetary Fund projects a trade surplus in Spain by as early as next year, and in Greece and Portugal by 2017. Government deficits are falling more slowly, but the IMF estimates that the cyclically adjusted primary deficits (a measure which excludes financing costs and the effects of deviations from trend growth) are now close to zero. In Spain, that deficit has dropped to 2.2 per cent of GDP from 8.5 per cent in just three years.

The adjustments are not yet complete. The deleveraging of the currency zone's banks also continues, although the pace is slowing, according to Deutsche Bank calculations. All together, the trade, fiscal and financial system problems will drag on for at least another few quarters. But the trends suggest a positive breakthrough could come toward the end of 2013.

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