Sometimes the most important news is what does not happen, as in the famous Sherlock Holmes story in which a key clue is the dog that does not bark in the night. In that vein, it is time to recognize that the “Euro Crisis” is over as a crisis, although long-term issues definitely remain. There have always been many different definitions of what the Euro Crisis was, which is one reason for the extent of the disagreement about its causes, consequences, and solutions. However, the core concept has generally been a serious risk of one or more nations ceasing to use the euro as a currency or of a series of national debt defaults that went beyond Greece. There no longer appears to be a serious risk of either event, although they cannot be ruled out completely.
Framing the situation as a “Euro Crisis” of dramatic proportions has shaped attitudes towards that continent for half a decade, but is no longer appropriate. Holding on to that now outdated mental construct will lead observers to excessively pessimistic conclusions. Europe has strengths and weaknesses, but it is now very unlikely to fall apart, which was not a far-fetched concern a few years ago.
If I am right, there are likely to be many good investment opportunities in Europe, with under-valuations reflecting the ingrained expectations of a European disaster in the minds of many investors who are not yet ready to return to the continent. To be clear, I am not saying that Europe has no serious problems. The refugee crisis, and its political consequences, comes on top of underlying challenges from an aging population, low productivity growth, continuing large government debt levels, the after-effects of the Global Financial Crisis, the Great Recession, and the Euro Crisis, as well as other problems that could be added to the list. But, every region in the world has problems. With the exception of the refugee crisis, none of the issues I just listed are crises, as opposed to medium and long-term challenges to be addressed by fiscal, monetary, and structural policies; they don’t need emergency weekend meetings of finance ministers and central bankers. Even the refugee crisis, for all its horrors, is relatively small compared to the resources of a large, rich continent.
Nor am I saying that Europe, and the Eurozone in particular, have solved all their structural governance problems. Considerably more needs to be done to deal with the disconnect between the levels of economic and political integration within the Eurozone. It is difficult to effectively run a single currency when the member states remain so different and national governments call so many of the shots within their borders. However, the Eurozone has muddled through to the point where it is very likely to be able to continue to manage the difficulties attendant on this hybrid structure of zone-wide and national decision making without severely damaging mishaps.
A further caveat is that there is still room for national crises, particularly political and economic crises within Greece, and the continuing risk that Britain pulls out of the European Union altogether. (This still seems unlikely to happen, but certainly cannot be ruled out.) Greece may yet fall out of the Eurozone or default again on its debt, although I certainly do not expect it. If it does, though, Europe is now strong enough to contain those problems within Greece without serious threat to the rest of the region and there is no serious likelihood of any other nation pulling back from the euro or defaulting on its national debt anytime soon.
Overall, every region has its problems and Europe’s do not seem worse than those on other continents. In fact, most of the developing world would swap their problems for these rich world woes in a heartbeat if they could.
Editor’s Note: This post originally appeared on Real Clear Markets.
If Trump truly wanted to emulate Churchill, he would celebrate the peace and prosperity of Europe and seek to strengthen rather than destroy trans-Atlantic ties.