BRUSSELS – The first act of the eurozone debt drama was about whether any European Union member country could ever become insolvent. It ended when the highest EU authority, the European Council, officially recognised in late July that Greece does need a reduction in its debt obligations.
But that acknowledgment of reality does not end the drama. The second act will be about restoring growth prospects for the EU periphery, which will pose an even more difficult challenge.
The key problem is simple: until 2008, these countries enjoyed a long boom based on cheap and plentiful credit, which allowed them to finance large current-account deficits. But any import boom creates a misleading impression of the local economy’s productive capacity.
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