EUR fundamentals: the “glass-half-full” look

The discussions on the possible collapse of the EUR intensified in the spring this year. The media and market participants are often heard to emphasise the dire state of the Euro-area economy and the lack of action from policymakers.

Not denying that the EMU is facing a few tough years ahead, it is worth pointing out that the situation has improved somewhat over the past few years. The EMU is now in a more sound state than it was just 3-5 years ago.

Notable improvements have happened in the periphery:

- Domestic competitiveness has improved as unit labour costs got adjusted down.
- Foreign competitiveness of the region has improved. The current account deficits have been cut significantly. EUR weakness helps.
- Fiscal adjustments are taking place as the fiscal deficits are already well below the crisis peaks.

Provided these processes continue in an orderly fashion, the EUR break-up risks will keep diminishing.