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- The Eurozone enters 2012 badly weakened and with a number of key interrelated risks hanging over it. Greece remains the most fundamental, but the weakness of the European banking system, the deteriorating economic outlook and the French election all have to factored in as significant threats.
- The new Spanish and Italian governments have shifted sentiment with respect to the periphery. That sentiment remaining positive depends on the market believing the two countries positions can be assessed in isolation from a far-reaching change in the political structure of the Eurozone, which will not happen – yet.
- The new European Treaty will be broadly irrelevant to the resolution of the underlying crisis at best; at worst it will have wasted time and political capital. However, Germany is not as obstructionist as it is sometimes caricatured, and there are interesting institutional innovations taking place in Brussels.
- Baring a serious crisis, there will be no new ‘grand bargain’ on political and institutional Eurozone governance in 2012 – although we may see the outlines of one start to emerge. There is, however, a chance that the bloc will muddle through this minefield. The Eurozone’s ability to survive 2012 will depend on a combination of public confidence, political leadership and a significant measure of good luck.
The views expressed in this report can be attributed to the named author(s) only.