The current crisis in the euro zone is principally the result of a systemic failure in the region’s monetary construction. Long-held fears that currency union without political union is unworkable have largely proved correct. However, we maintain the view that the euro zone will not break apart, and that all current members will continue using the currency.

Although parts of the euro zone, particularly the periphery, will require a long and painful period of economic and structural adjustment, some of the core countries within the region remain some of the most competitive and highly developed in the world. It is also important to remember that the weakest parts of the periphery make up a relatively small part of the euro zone. A closer examination of the debt position of the four largest economies suggests that, in aggregate, the euro zone debt position is potentially more sustainable than that in other developed economies.

THE ECONOMIC OUTLOOK