Mohan Murti

There is little to suggest the euro is about to disintegrate. By comparison with US and Japan, European economies are in better shape.

As in each year, I was at Germany's prettiest Christmas market that opened last week, in the city of Cologne. The market is huddled around the Rhine River metropolis' spectacular ‘Dom', the 800-year gothic cathedral.

Amid the smell of delightful citrusy mulled wine known as ‘Gluehwein', baked apples and ginger bread drifting through the air across the market, the general gossip was on two individuals who grabbed a lot of media attention in Europe in the past ten days.

In Vatican, Pope Benedict caught the attention with his proclamation on condoms. Coming as the first papal acknowledgment of condom use as an important “evolution of theology” and a “liberation” from a church position that many of the Catholic faithful struggle to defend.

After all, secular Europe is a constituency that Pope Benedict views as crucial to restoration of Roman Catholicism. But, given the Vatican's more conservative direction under Benedict, this is being read as a shift from negative to positive language on matters related to sexual behaviour — at a time when the public image of the church in Europe is shoddily dented over priestly child abuse scandals in Ireland, Germany, and Belgium.

The chitchat on other individual who snatched media attention was on the star of Europe, Germany's ‘Iron Chancellor' Ms Angela Merkel. She was much in the media for taking a tough approach to Europe's flagging economies and, has been pushing for greater fiscal responsibility in the eurozone.

Iron Chancellor

As a physicist, Ms Angela Merkel likes to think plain ‘black and white' – with no shades of grey. Anyone who violates these parameters garners chaos and confusion. She is staunch, stubborn, unbendable and resolute, portraying herself as a true champion of a stable euro. The German Chancellor is pushing for the new epoch of European austerity amidst a series of financial catastrophe shaking Europe's nucleus and raising unsullied questions about its single currency as well as the camaraderie of a union.

Launching of the euro eleven years ago was celebration time as it fulfilled the vision of post-war Europe, of erasing borders and dismantling nationalistic history. It was heralded as a great unifier of nations with common interests and equally cherished values.

From the Greek financial disaster earlier this year, to an Irish bank debt crisis last week that has pushed Ireland to accept up to $120 billion in bail-out funds, Europe ostensibly, is struggling to rescue a currency so closely linked to its unity. The economic woes of Ireland and Greece as well as that of debt-strapped Portugal are not impossible to tell apart. Irish banks are held responsible for engaging in risky lending during the real estate boom. Banks there are holding about $90 billion in dire loans.

Greece allegedly fudged its books for years. Portugal has public, consumer and corporate debt. Italy has one of the utmost pubic debts in Europe, the third highest in the world.

Euro is Immortal

The mood in Europe is currently one of alarm - yet again. Pessimists claim that the crisis means the euro is finished. But, that scenario is unrealistic - in reality, there is little to suggest that the common currency is about to disintegrate. Agreed, Greece was saved first, and now it is the turn of Ireland. But, it would be erroneous to wrap up that the problems faced by the two countries are somehow comparable.

The only thing they really share in common is their trivial importance to the euro zone as a whole. Greece only represents roughly 3 per cent of the currency union's total economic output. And, for Ireland, that figure is 2 per cent.

This is still less than the share that the state of New York contributes to the United States' gross domestic product. Furthermore, New York's financial crumple would hardly create hurly-burly for the dollar. The euro is actually in a good position compared to the dollar and the yen.

Just a Wounded Tiger

I wrote in my column ‘Ireland, Continent's Celtic Tiger' (October 23, 2006) and I still maintain that Ireland is a modern, prosperous state. The country has in recent years already proven both its business model and its ability to institute reforms.

A herald in the European Union since 1973, Ireland has evolved from being Europe's pitiable underprivileged to the Celtic Tiger with an internationally competitive economy. And, Ireland continues to export more than it imports.

Yes, Europe's debt problems are without a doubt considerable. But compared to the United States and Japan, the euro-zone States can already point to initial successes in sorting out their finances. The public debt in Japan is at about 200 per cent of GDP, around 2.5 times as high as the euro-zone average.

By comparison, Europe looks as dynamic as an emerging economy. And, the much-celebrated emerging economies themselves - including India, are still packed with risks when it comes to investment possibilities. It will take a ‘financial slump test' to truly determine the true state of the emerging markets.

Indeed, European economies are in better shape. That will help to ensure that the euro remains one of the world's most important, and thus attractive, currencies. Lastly, given the current situation, these scary predictions might seem seductively persuasive. Nevertheless, I am convinced that they are pretty dubious. The state of affairs in Ireland is perceptibly anything but rosy. And, it would be slapdash to ignore the possible dangers facing the euro.

But, at the moment there isn't much indication that the currency union is under any grave threat, let alone that it is staggering into a crisis that will ultimately end in the death of the euro.

And clearly, in this scenario, decisiveness, solidarity and political leadership is being shown by Germany.

(The author is is former Europe Director, CII and lives in Cologne, Germany. blfeedback@thehindu.co.in)

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(This article was published in the Business Line print edition dated November 29, 2010)
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