Analysis & Opinions - The New Republic

The Rumors of the Euro's Demise Are Greatly Exaggerated

| December 13, 2011

Another month, another EU Summit. And once again, markets are judging the compromise as, at best, incomplete—at worst, disastrously insufficient. On top of everything else, the new agreement has managed to formally isolate Britain from the other 26 EU member states. (British euroskeptics are applauding their country's newfound estrangement, but more considered commentators realize the situation is fraught.) So is Europe ultimately doomed to allthatjazz about euro breakup and financial apocalypse?

Not quite. What we are seeing in Europe is the messy product that results when the demands of financial markets collide with those of politics. Markets tend to reward under-promising and over-delivering. Consider for instance Apple's time-honored strategy of under-estimating future performance, providing investors consistently low targets for everything from sales to cost margins—only to see itself rewarded when humble estimates are met with blockbuster performance. The laws of electoral politics could hardly be more different: Politicians generally benefit from over-promising and under-delivering. (Consider a typically grandiose speech from any French politician and you'll realize the political cost of optimism is low.) The public rarely rewards politicians peddling unadulterated gloom at election time, even when circumstances are indeed dire....

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For Academic Citation: Barbieri, Pierpaolo.“The Rumors of the Euro's Demise Are Greatly Exaggerated.” The New Republic, December 13, 2011.

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