Time is running out

France’s President Hollande grants the euro zone two years for establishing a political union. However, before this there will be German federal elections, then European parliamentary elections. There is not much time for the required course adjustment, especially since the cracks are widening.

Although the speculation against the Euro has subsided, with spanish and italian risk premiums lowering, there is a fear of failure again.

A glance at the economic data helps understanding. The US and Japan are back on a growth path, even Great Britain is recovering slowly from the crisis. It’s only the Euro countries lagging behind, with no improvement in sight.

By now even the ‚core‘ countries have been affected. Germany expects a largely academic growth of 0.1 percent. ECB head Asmussen talks about Europe’s ’sick man‘ returns.

We cannot afford a lost decade

Cracks in the Euro zone widen. Although fresh debt and deficits are in decline, total debt is growing, with an ever growing imbalance.

Last year’s ticking time bomb may have been defused, however time is still running. The monetary union cannot be stuck in a recession forever, against mass unemployment and the distrust of its citizens.

A lost decade like Japan’s will not be survivable by Europe – even now the social and political glue holding the European Union together is loosening.

Brussels experts call for the EU to be converted into a democratic federation.. French president Hollande wants a political union as well.

But time is running short – the best moment may already have passed, when Chancellor Merkel removed the Euro zone reform from the agenda last December.

At that moment there was a political and economic momentum created by the deep shock of speculation against the Euro. By now the upcoming elections paralyze the reformation urge.

To turn this situation around, I think following three circumstances need to arise:

* the economy has to turn fast and hard, to prevent sliding into deflation.
* there hase to be a strong political push to overcome the current North/South block.
* Euroland needs a new strategy. Neoliberal shock austerity has not worked.

But all of this is very unlikely. I would not give it a higher than 5 percent chance. Either a power change in Berlin or a strong message at the European elections could genuinely move things.

Despite last year’s fears the Euro has not collapsed with a bang. The threat may now be even worse: a slow, agonizing sickness …

On this issue, please have a look at my latest poll