Wall Street Journal
August 12, 2012
The euro zone is at a decisive juncture—not only in its three-year-old debt crisis but in its 13-year-old history. And the two are inextricably linked: The short-term symptoms of this crisis have their roots in long-term ailments.
Europe is undergoing a correction of the macroeconomic imbalances that built up before the financial shock of 2008. Over the last decade, Europe's integrated financial market channeled savings from countries with sluggish domestic demand to countries where demand was thriving, credit was booming, and wages and prices were increasing.
Over the last two years, Europe has made remarkable progress in addressing these imbalances. Consider the three euro-zone countries under full economic adjustment programs: Ireland has been able to re-access the markets earlier than envisaged. Portugal's stronger-than-expected export growth is helping to offset weaker domestic demand. Even Greece has achieved more than is often realized. Its current government is committed to reforms and enjoys broad parliamentary backing. Negotiations are ongoing over the future of the Greek economic adjustment program.
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