France’s president François Hollande says the euro crisis is over. What “wishful thinking”, says Richard Barley in The Wall Street Journal. The troubled states continue to rack up debt and are stuck in recession, so the threat of “social and political strains that have so far been surprisingly muted” persists.
Meanwhile, the main reason last year’s panic abated was the European Central Bank’s promise to buy troubled countries’ bonds in unlimited quantities to stave off bankruptcy. This Outright Monetary Transactions (OMT) programme has not had to be used yet. It’s acted as an insurance policy, reassuring investors and lowering yields, and hence implied borrowing costs, on peripheral debt. But now OMT is being challenged in Germany’s Constitutional Court. “The big fear is that Germany’s support… could be withdrawn and trigger a renewed escalation of the debt crisis,” says Eric Bernhardt of Umblin AG.
The Court is thought unlikely to block the policy, but “anything that might limit the ECB’s room for manoeuvre could cause investors to fret”, says Barley. A key worry is the opposition of Germany’s Bundesbank, says The Economist, which has been in the spotlight this week. This could shake investor confidence in “just how unlimited bond purchases might turn out to be in practice”. Throw in Europe’s achingly slow progress towards a banking union, needed to “break the pernicious link between weak banks and enfeebled sovereigns”, and it’s clear the crisis saga is far from over.