LONDON – Is Europe’s crisis
over? Investors, policy analysts, and even officials are quietly
beginning to suggest that this might be the case. The euro has
strengthened by nearly 10% against the dollar since European Central
Bank President Mario Draghi vowed on July 26 to do “whatever it takes” to hold the currency together.
Similarly,
the Euro VIX, a popular measure of expectations of euro volatility, has
fallen significantly. The cost of buying protection against
fluctuations in the euro/dollar exchange rate declined last month to its
lowest level in nearly five years. Borrowing costs for the Spanish and
Italian governments have similarly fallen dramatically.
A
consistent narrative underpins this change in market conditions.
European leaders have put in place mechanisms to support Italy and
Spain. As of October, the continent has an operational European Stability Mechanism to purchase new Italian and Spanish government bonds if investors go on strike.
