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Opinion

Against the tide: Reports of the euro’s death are greatly exaggerated

The eurozone’s advantages for both strong and weak members far outweigh any disadvantages that might incline countries to walk away.

There is an increasing body of opinion that thinks the eurozone will break up. The evidence of increased tension is expressed in the spreads of bond yields to German government debt of the weaker periphery countries. These have widened dramatically, reflecting the poorer fundamentals of these countries. However, the absolute cost of their government debt has hardly shifted, because of declining long rates globally. The weaker eurozone governments are paying now much the same as they paid before.

The reasons why the euro is structurally as solid as a rock surpass feelings that are often prejudiced for or against the single currency

The one exception is Greece. But with all due respect to this cradle of European civilization and coffin of good macro-management, the Greeks do not matter much for the euro. Their GDP is 2.5% of the eurozone’s, while Spain’s is 11%. And it is Germany’s 27% share that really matters. Had the cost of financing periphery countries’ debt risen, coupled with their over-high levels of debt to GDP, this could indeed have caused their budget deficits to blow out. Even then, the cost should really be compared with the enormous cost of being outside the eurozone.

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