Sorry to make the title so simplistic, but it really does feel like the Eurozone could go one of two ways after the last couple of days.
The European Central Bank signaled that it might be more willing to be a lender of last resort and/or to purchase toxic assets from struggling countries, and of course the ECB joined with the Fed and other central banks (the Bank of England, the Bank of Canada, the Bank of Japan, and the Swiss National Bank) to create a plan for “swaps” that will increase liquidity and hopefully prevent the financial system from freezing up.
But are those moves enough? Do they signal enough future action? Or will the crisis continue to fester until the euro collapses?
Ezra Klein from the WashPo’s Is the euro zone’s flaw fatal?, quoting Joe Gagnon, a senior fellow at the Peterson Institute for International Economics:
“I think we’re in the endgame here in the next three weeks,” Gagnon says. “Either they don’t deliver what the ECB wants and it all blows up, or they do deliver what the ECB wants, and they all get bailed out.”
Paul Krugman from Killing the Euro:
True, market pressure lifted a bit on Wednesday after central banks made a splashy announcement about expanded credit lines (which will, in fact, make hardly any real difference). But even optimists now see Europe as headed for recession, while pessimists warn that the euro may become the epicenter of another global financial crisis.
Krugman is certainly one of those pessimists and details some of the history (that he has basically called in real time over many months now) of premature austerity propelling the continent toward crisis. A snippet:
Although Europe’s leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole. And their efforts to fix matters by demanding ever harsher austerity have played a major role in making the situation worse.
It’s going to be a tense couple of weeks, and there’s going to be lots of pressure from the U.S. for the ECB to step up in a big way.
I’ll be following developments as they occur, and will probably post regularly about it.