Euro Marriage in Peril

By Nouriel Roubini

Nouriel Roubini

[The euro zone's union] proved to be a marriage of shared bank accounts and credit cards in which one side over-saved and the other over- spent.

On the morning of July 26, 2012, I was meeting with the central bank governor of a country at the core, or stable center, of the euro zone. He was telling me that the European Central Bank could do little to rescue peripheral countries like Italy and Spain, whose interest rates were going through the roof.

On that day, to the surprise of my interlocutor and global investors, the E.C.B. president, Mario Draghi, made his famous declaration that the bank was prepared to do “whatever it takes” to preserve the euro. That led to the creation of outright monetary transactions, known as O.M.T., and saved the euro zone.

Today the risks for the euro zone are much lower. Still, 2013 has been a volatile year. The crisis in Cyprus showed that the euro zone remains deeply divided over how to resolve the crisis in the periphery; inconclusive German elections created new uncertainties in the euro zone’s core; and the Italian government teetered on the verge of collapse more than once.

Read full article as published in The New York Times

Nouriel Roubini is a Professor of Economics and International Business and the Robert Stansky Research Faculty Fellow.