The sentiment that the euro is now in real danger is based in large part on the widespread conviction that interest rates of 6-7% are simply unsustainable for both Italy and Spain. After taking a closer look at the fundamentals, however, Daniel Gros concludes in this new Policy Brief that both...

This paper describes the key economic variables and mechanisms that will determine the adjustment process in those euro area countries now under financial market pressure. (Greece, Ireland, Portugal, Spain and Italy = GIPSY). The key finding is that the adjustment will be particularly difficult...