The euro crisis isn’t over

As the eurozone economic recovery begins to gain traction and as the credit rating agencies start to upgrade former eurozone deadbeat countries, the conventional wisdom seems to be that the euro crisis is now safely behind us. It would be wonderful if that common view were proved right.

Sadly, however, there are all too many reasons to think that the conventional wisdom will prove to be far too complacent and that the euro crisis could raise its ugly head again next year. It could do so when the European Central Bank starts to normalize its present ultra-easy monetary policy stance and when the Italian parliamentary elections next year focus attention again on the basic flaws in the euro’s design and on the eurozone’s remaining economic vulnerabilities.

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Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund’s (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.