And they didnít fall down

The eurozone crisis is coming to an end. As optimism creeps back in, financial markets are showing more trust in the long-term viability of the eurozone. Ireland, the first of the bailout countries, is about to exit its bailout programme. And it is now clear that Greece is not going to leave the European Union. While it will still take several years before recovery is complete, now is an ideal time to consider the lessons learned.

The first lesson is that the eurozone crisis was largely a self-fulfilling prophecy, made worse by misguided austerity measures. There was no real reason for a solvency problem in Greece to bring the whole of the EU into crisis. Greece is only 2 per cent of the eurozone economy, and the EU is about much more than trade.

Yet, markets reacted with punishing rapidity every time there was a hint of news that other countries might follow in Greece's footsteps. The global doomsday rhetoric and subsequent market response were so overblown that member states without any debt problems at all were quickly dragged into the crisis. Adding insult to injury, ratings agencies seemed almost eager to downgrade sovereign debt, further perpetuating the downward spiral.

When dealing with financial markets, perceptions matter greatly. The crisis of confidence quickly became a real economic crisis as markets bet against the euro and austerity measures took their toll. Austerity measures aimed to bring confidence back but instead, they quashed growth. Top economists at the International Monetary Fund now admit that austerity was the wrong strategy in response to the crisis.

The second lesson is that the EU must do more to explain itself to the international community. As the eurozone crisis grew through 2010 and 2011, many forgot that Europe was actually a victim of the global financial crisis that began a couple of years before as a sub-prime mortgage crisis on Wall Street. Yet, US politicians and journalists continually painted a picture of the reverse, that the European crisis threatened to spread to America. The reality is that Europeans have had steady growth and a strong currency since the introduction of the euro. It took the Wall Street crash and subsequent global contraction to destabilise what had become a highly successful, thriving economy.

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