While I contend that Eurozone is not dead (yet), it is important to talk about what the Euro did wrong to contain the spread of worry that sent markets tumbling.

As The Economist points out, one possible reason is simply failure to contain the disease:

The euro zone failed to contain market worries as they spread from Greece to Portugal and Ireland. Cautious investors began to shed exposure to banks and sovereigns that might potentially be affected, contributing to rising yields in places like Italy. That, in turn, worsened the outlook for Italian solvency and contributed to a feedback loop of doom

Some point to the Italian economy as the culpret. The magazine says not so fast with that claim. After all, the Italian economy has been awful for at least a decade. Italy’s growth was barely in the black for almost a decade. No, this is too simple an explanation to a question that is misleadingly complex.

as the magazine again points out, this is a question of government solvency. Growth expectations and the failure of the European Central Bank to offset public fear make more reasonable explanations than a bogie-man floating through Europe that has leaders hiding under their covers. The magazine :

“Governments around the single currency area have pursued a substantial, coordinated fiscal tightening; the opposite of what governments attempted to draw up in 2008 and 2009. Perhaps more importantly, the European Central Bank—the one truly powerful, supra-national economic institution in the European Union—has coordinated a sharp decline in expectations for nominal growth.

Above all, the neccesity is that the banks act. And act quickly. They have already lost too much time and money debating the (unsound) ideas of austerity.

Money quote:

Maybe the single currency will survive. It will certainly be disastrous if it doesn’t. But if the ECB manages to rescue the euro zone with a life-saving infusion of cash delivered via massive bond purchases, we shouldn’t forget that it was the ECB that nearly killed it in the first place.

What do you think is killing the Euro?

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