Euro doomsayers adjust predictions after 2012 apocalypse averted

Fri Dec 28, 2012 8:29am EST
 
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By Noah Barkin

BERLIN (Reuters) - Back in May, as the euro zone veered deeper into crisis, Nobel Prize-winning economist Paul Krugman penned one of his gloomiest columns about the single currency, a piece in the New York Times entitled "Apocalypse Fairly Soon".

"Suddenly, it has become easy to see how the euro -- that grand, flawed experiment in monetary union without political union -- could come apart at the seams," Krugman wrote. "We're not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years."

Krugman was far from being alone in predicting imminent doom for the euro in 2012. Billionaire investor George Soros told a conference in Italy in early June that Germany had a mere three-month window to avert European disaster.

Then in July, Willem Buiter, chief economist at Citigroup and former Bank of England policymaker, raised the probability that Greece would leave the euro to 90 percent, even going so far as to provide a date on which it might occur.

Buiter's D-Day -- January 1, 2013 -- falls next week. And yet no one now believes a "Grexit", or catastrophic implosion of the euro zone for that matter, is just around the corner.

Half a year ago the chorus calling an end to the euro reached a crescendo. Among the chief doom-mongers were some of the world's leading economists and investors, many of them based in the United States.

Fast forward six months and their prophesies look ill-judged, or premature at the least. The euro has rebounded against the U.S. dollar. The bond yields of stricken countries like Greece, Spain and Italy -- a market gauge of how risky these countries are -- have fallen back.

Even the gloomiest of the gloomy are revising their forecasts, although they warn of more trouble ahead.   Continued...

 
A work-in-progress sign is seen near the EU commission headquarters in Brussels December 8, 2011. REUTERS/Philippe Wojazer