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How Europe's Trade and Investment Ties Have Frayed

Foreign ownership of debt in euro-area countries is dropping
A euro-sign sculpture outside the European Central Bank headquarters in Frankfurt
A euro-sign sculpture outside the European Central Bank headquarters in FrankfurtPhotograph by Ralph Orlowski/Bloomberg

The euro was launched in 1999 to increase prosperity by smoothing the flow of trade and capital within Europe. But as Europe lurches from crisis to crisis, ties are fraying. Trade and investment between euro-zone nations has diminished—which means the euro zone is slowly losing its main reason for being, regardless of whether it remains intact on paper. As T.S. Eliot almost said: This is how the euro ends, not with a bang but a whimper.

Germany has found a way to keep its export machine going even as its traditional European trading partners founder. In 2007 its exports to Italy, Spain, Greece, Ireland, and Portugal were 27 percent higher than its exports to China and the U.S. By last year, Germany’s exports to those five nations were 35 percent lower than its exports to China and the U.S., according to Bloomberg Businessweek calculations from data collected by Eurostat, the European Union’s statistical agency.