The Eurozone Mess is Back

Just when we begin to see some positive economic news we are reminded by Nouriel Roubini that the Eurozone mess is back. In fact, it never left but was simply ignored over the summer following the trillion dollar palliative in May. Now that summer is over and folks are beginning to realize nothing fundamentally changed over this period sovereign credit spreads are back up to where they were at the height of the crisis. Here is Roubini’s conclusion:

So a eurozone that needs fiscal austerity, structural reforms, and appropriate macroeconomic and financial policies is weakened politically at both the EU and national levels. That is why my best-case scenario is that the eurozone somehow muddles through in the next few years; at worst (and with a probability of more than one-third), the eurozone will break up, owing to a combination of sovereign debt restructurings and exits by some weaker economies.

So I guess this means we can once again look forward to a further drop in Treasury yields and lengthy blog discussions on optimal currency areas. I am also guessing this will reinforce the downward march of inflation expectations which left unchecked will mean a further passive tightening of U.S.monetary policy. What a great way to head into the holiday season. At least I know what I want for Christmas.

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About David Beckworth 240 Articles

Affiliation: Texas State University

David Beckworth is an assistant professor of economics at Texas State University in San Marcos, Texas.

Visit: Macro and Other Market Musings

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