A
true debacle happened. Just when we thought the euro was safe, that ECB
President Mario Draghi had single-handedly duct-taped the Eurozone back
together in the summer of 2012 with his magic words, “whatever it
takes.” Markets assumed that they were backed by the ECB’s printing
press, and they loved their assumption. Spanish, Italian, even highly
dubious Greek debt, some of it with a fresh haircut, soared. And hedge
funds and banks gorged on it and loved it. The debt crisis was over! Stocks soared even more. Money was being made.
So bank bailouts continued, and the Eurozone
recession proved to be a nasty long-term affair, but no problem,
everything seemed to be guaranteed by the ECB. Debt-sinner countries, as
Germans like to call them, could suddenly borrow for nearly free, and
neither deficits nor debts mattered to financial markets.
But now comes ratings agency Standard &
Poor’s and douses our illusions, because that’s all they were, with a
bucket of ice water. The soaring popularity and electoral successes of
Germany’s anti-euro party, Alternative for Germany (AfD), could push
Chancellor Angela Merkel and her party, the conservative CDU, to take a
harder line against bailouts, hopes of QE, and all manner of other ECB
miracles that financial markets had been counting on. And it could spook
them. And the nearly free money could suddenly dry up. So S&P
warned:
None of this would matter much, if we were to assess that the euro crisis is safely behind us. However, this is unlikely to be the case. Eurozone output is still below 2007 levels, and in 2014 the weak recovery has come to a near halt in much of the euro area. Unemployment remains precariously high and disinflationary pressures have been mounting. Public debt burdens continue to rise in all large euro area countries bar Germany.READ MORE
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