Nothing is forever (except for the euro crisis)

Published in The National Business Review (Auckland), 22 June 2018

In a different country, a long time ago, I once set out to be a weekly columnist. And it was no ordinary column. No, at the time I thought I had just landed a job for life.

It was in early 2010, right at the start of the Greek debt crisis, when I submitted a one-off opinion piece to the Australian online magazine Business Spectator.

To be frank, I did not even write it with any employment-seeking intentions. I only wanted to vent my anger at the European Union’s pathetic handling of the crisis. It did not help the Greeks, and it hurt the Germans. Which, by EU standards, probably made it a balanced measure.

But I digress. Shortly after I had placed my piece, the Business Spectator’s founding editor, veteran journalist Alan Kohler, called me to ask if I could write something more regular “on that euro crisis.” When I asked him what he had in mind, Alan suggested something weekly “for as long as that crisis lasts.”

I instantly thought I had won the greatest prize in the lottery of life. There I was in Sydney, and all I could do now for the rest of my life was watch the decline of Europe and write about it. And even though I am German, I would be sheltered from the fallout by the magic of distance.

As far as a columnist’s career is concerned, this was a dream come true: to be an antipodean Europe correspondent. Which means all the excitement of economic doom but from a comfortable position in the sun.

Over the following years, I published almost 300 columns on various aspects of the great European decline. Which was easy while the crisis dominated the front-pages. Riots in Athens, emergency summits in Brussels, and stock market crashes were the perfect backdrop for my gloomy column. I enjoyed my job as Mr Euro Doom.

I only struggled when things appeared stable. That was the anticyclical challenge for my column. Of course, I could not just tell my readers that things had suddenly improved. Readers readily forgive wrong forecasts but they do not like columnists changing their minds. Or, as one of my editors once told me: “Be consistent!”

In any case, I did not even believe that just because markets had calmed and there were no more political summits on Sunday nights suddenly everything was okay. Quite on the contrary, I interpreted this change as a mere evolution of Europe’s troubles. All it meant was that the crisis was no longer acute but had become chronic.

Why, my dear NBR readers, am I telling you all this? Because I want you to question what you usually read about the European crisis. This week, for example.

As was widely reported, the European Central Bank has announced the end of its bond-buying programme. The rescue programmes for Greece will conclude in July. And maybe, by the end of this year, we will even see some timid interest rate increases in the eurozone.

If you are not following Europe closely, you would be forgiven for thinking that this meant the Euro crisis was finally over and everything was back to normal.

But if you did, you could not be more wrong.

Over my many years as a columnist, I discovered a great barometer to track the true state of the Euro crisis. It is called Target 2, and it is an obscure clearance mechanism installed by the European Central Bank. I wrote about it in NBR almost a year ago (Europe’s trillion euro problem).

To explain the technicalities behind Target 2 would require more than a few hundred words. Suffice to say that the scheme has become a virtual overdraft facility for most eurozone economies to pay for their balance of payments deficits. Or think of it as an indicator of capital flight from the eurozone periphery to (mainly) Germany.


But no matter how you think about it, the Target 2 balance owed to Germany via its Bundesbank reached a record high of 956 billion euro last month. That is a lot of money, especially if you consider that in a normal state of affairs this balance would be precisely zero.

Looking at the graph of the Bundesbank’s Target 2 balance since 2007, you can see each stage of the euro crisis reflected. It took off in 2007 when markets first got nervous about southern European banks. It got worse when the sovereign debt crisis started. It temporarily receded when European Central Bank president Mario Draghi promised to save the euro “whatever it takes.”

But, crucially, for the past three years Target 2 balances have been steadily increasing. All of this without the public taking much notice. Because the dramatic pictures from Athens, Rome and Madrid have stopped, the euro crisis has disappeared from public view. But that does not mean it has gotten any better. On the contrary, the Target 2 indicator has never been higher than today.

And that is why the euro crisis may have become ingrained, chronic or hidden – but it is not over.

The only thing that is over is my career as a weekly Euro columnist. My column disappeared when the Business Spectator was taken over by The Australian newspaper.

There are no jobs for life – but there are eternal crises.