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Real hope in Europe?

Europe’s mushrooming sovereign debt crisis — which Finance Minister Jim Flaherty says has already hurt Canadian economic growth — has led to the crucial, some say inevitable, question facing euro-zone leaders on the future of the monetary union.
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Europe’s mushrooming sovereign debt crisis — which Finance Minister Jim Flaherty says has already hurt Canadian economic growth — has led to the crucial, some say inevitable, question facing euro-zone leaders on the future of the monetary union.

Unite further or divide, perhaps completely?

German Chancellor Angela Merkel and French President Nicholas Sarkozy, desperately trying to save the euro — and possibly the European Union itself — laid out their expected answer last week.

To reassure the markets that Europe could repay its debts, they said, members of the euro-zone must agree to cede at least some of their national sovereignty over budgetary matters to EU oversight meant to ensure responsible fiscal behaviour.

That, in turn, would allow the European Central Bank, and perhaps the IMF and others, to more forcefully prop up nations staggering under enormous debt loads, such as Italy, while they fundamentally remake their economies to become more efficient, enabling higher growth.

The alternative, it was widely understood, was the abyss: Europe would be unable to stop the dominoes of debt default from toppling Italy, Spain and other heavily indebted states, leading to a global liquidity crisis that would freeze credit and plunge the world into perhaps an even more dire recession than that experienced in 2008.

Markets moved upwards immediately, buoyed by Merkel and Sarkozy’s tough talk and bold plans, though details are still thin.

At this point, investors clearly want to believe the leaders of Europe’s two biggest economies have pointed the way out of the current debt mess.

Of course, even if leaders of other European countries at Friday’s critical summit in Brussels could be brought on side with revising the EU treaty, as Merkel and Sarkozy hope, questions remain.

Many observers doubt such significant changes would survive ratification in all 17 members of the euro-zone.

In places like Germany, there has been strong domestic opposition to the bailouts that have already occurred.

Even in a best-case scenario, where the EU treaty gets amended, it’s also debatable if the plan would work long-term.

Some economists predict the euro-zone must eventually shrink to a more homogeneous core of strong economies.

Those questions, however, are for another day, hopefully in rosier economic times.

For now, it’s all about survival.

An editorial from the Halifax Chronicle Herald.