The need for adjustment in the southern periphery of Europe has occupied politicians and financial markets for five years and led to severe hardship through very large falls in output and high unemployment. The pain of the correction has not been alleviated by its unexpected nature. When and before the euro was launched in 1999, many experts (including from the German Bundesbank) warned against the notion that countries in a monetary union with Germany that could no longer adjust their economies through exchange rate changes were entering the gates of paradise. They would either have to get their costs and productivity in line with those in countries with sounder economic structures – or see these changes thrust upon them by the brute force of low economic activity and lost jobs. This is exactly what has happened.
However, there are some bright spots. We record how economic reforms have spread into the south, with some reasons for optimism in Greece, Portugal, Spain and (even) Italy, where a new government under Matteo Renzi, the mayor of Florence, is preparing to take office and push forward the reforms that Italy knows it needs but has not so far achieved. George A. Provopoulos, Governor of the Bank of Greece, and Carlos Moedas, Secretary of State to the Portuguese prime minister, both deliver upbeat messages on the state of their respective economies – although the view from Athens remains tinged with worries that politics could throw the improvements off track. Lorenzo Codogno spells out the need for Europe to embrace risk capital to support the move out of crisis. Bob Bischof tells Britain to concentrate on emulating Germany, not overtaking it, and Holger Schmieding pours scorn on the apostles of euro gloom. Vicky Pryce gives a less optimistic assessment of Greece, while Kenneth Dyson outlines challenges facing Germany over European institutional reform. We illustrate, too, how at a time when Chancellor Angela Merkel’s authority is coming under threat, her predecessor Gerhard Schröder – a former sceptic on the euro now turned supporter – is taking on a statesmanlike allure. Gabriel Stein surveys the difficulties of interpreting data from the International Monetary Fund on reserve currency diversification. Darrell Delamaide analyses the outbreak of consensus on the Federal Open Market Committee over tapering the Fed’s monthly asset purchases under new chairman Janet Yellen. Steve Hanke takes issue with prevailingly positive comments over the legacy of her predecessor Ben Bernanke. William Keegan expresses his worry about the rise of ‘the politics of envy’.