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Bloomberg View: A Solvency Test for the Euro Zone's Ailing Economies

Europe is healthier than you think—but someone needs to save Spain
Bloomberg View: A Solvency Test for the Euro Zone's Ailing Economies
Illustration by Bloomberg View

The battle to save the euro turns on one question: Can large governments, notably those of Italy and Spain, get their debts under control?

Because they are in a monetary union, euro members can’t take the easy way out by devaluing their currencies to make their obligations smaller and exports cheaper relative to others’. Instead, they have to make painful budget cuts and slash workers’ wages to restore their competitiveness—moves that, in the short term, can make their debts less manageable by eroding economic growth. If the belt-tightening proves too much to bear, or if the markets lose faith in the governments’ ability to succeed, the euro area will break apart.