Threat of downgrade

What's wrong with the euro? Our editorial team asked that question 11 years ago. Even though the currency wasn't yet available in the form of notes and coins, it did exist as a so-called book currency on financial markets. A search through our archives revealed some concerns about the currency even back then: "Exchange markets have a very good feeling for whether or not politicians are pursuing the right course."

In three weeks, the euro will celebrate its tenth anniversary. Nearly a decade has passed since people in the eurozone countries began using the new currency to buy and sell goods and services. While champagne corks may be flying on New Year's, don't expect to see them pop in celebration of the euro's tenth birthday.

A decade ago the views of the skeptics who argued that Europe wasn't ready yet for a common currency were ignored. The eurozone community, they warned, wanted to leapfrog to the second step ahead of the first. They argued that common currency requires a common budgetary policy.

A question the world outside the eurozone has been asking repeatedly reflects this initial concern: How can you have a common currency with 17 central banks, 17 national budgets and 17 finance ministers in addition to all the other European institutions? The Chinese, according to a bond trader in Frankfurt, would jump at the opportunity to buy eurobonds but not the government bonds of individual countries.

Now comes a harsh warning from one of the guardians of creditworthiness, the credit rating agency Standard & Poor's. It may still be just a warning, but it exploded nevertheless like a bomb. Politicians and other policymakers, including Eurogroup head Jean-Claude Juncker, are responding with their customary defensive reflexes: Let's not take the ratings too seriously, they say.

Wrong! The warning comes as no surprise; it is timed just days before the euro crisis summit, of which there have been 13 over the past two years - all ending without any noticeable improvement of the situation. Europe needs to overcome its timidity and face the facts.

It remains to be seen whether the eurozone leaders meeting in Brussels can finally succeed in pulling their act together. Just look at the self-appointed euro leadership duo Angela Merkel and Nicolas Sarkozy. They appear united in front of the cameras but, behind them, are bitterly torn over the right course of action to take, whether eurobonds are the answer and whether the European Central Bank should buy up government bonds from debt-saddled eurozone countries. Merkel has given Sarkozy a flat "nein" to both.

On key issues like the sovereignty of states, the eurozone members have struck a foul compromise. While it will be possible to take member states to the European Court of Justice if they fail to meet their economic obligations, the court can't annul their national budgets.

So the eurozone's birth pains are far from over. Yes, the rating agencies have made mistakes in the past. They have been criticized for not having issued warnings early enough. Now they're doing so. We may not be happy with their warnings, but the fact is, they are putting their finger on the wounds - and pressing. I recall one of our articles from 11 years ago: "It's up to the political leaders - and only them - to steer the euro from its crisis in the long term." And nothing has changed today.

Author: Henrik Böhme / jrb
Editor: Holly Fox