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A2 | Monday, May 1, 2017
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THE WALL STREET JOURNAL.
U.S. NEWS
THE OUTLOOK | By Marcus Walker
Euro Holds On, Despite Its Enemies
Berlin
he euro survived the financial crisis and a lost
decade for the European economy. Now its test is
political, and it is likely to
survive it—battered as ever
and still getting the blame for
Europe’s problems.
In Europe’s year of election
contests between the political
establishment and its enemies, the euro is being targeted by populist insurgents
and some mainstream figures.
The common currency is variously blamed for unemployment, industrial decline, loss
of national identity and German hegemony.
France’s far-right leader,
Marine Le Pen, who faces centrist candidate Emmanuel Macron in the final round of the
presidential election May 7,
wants a referendum on leaving
the euro. So does Italy’s antiestablishment 5 Star Movement, which could win power
in elections due by mid-2018.
Mr. Macron, whom opinion
polls favor to win Sunday, supports the euro but says it needs
a major overhaul. He argues
the currency union is skewed
toward German interests—a
common view outside Germany—and says the euro’s 19
countries need a common budget to finance growth-friendly
investments and recovery in
struggling member nations.
That’s anathema to Berlin.
The euro was meant to
bind European countries together, economically and politically, while boosting investment, productivity and
growth. Instead, it has ex-
T
posed underlying weaknesses
in many countries.
However, today’s political
attacks on the euro are unlikely break it up. Although
Europeans love to criticize the
euro, they mostly don’t want
to leave it. Opinion polls have
consistently shown low support for returning to the
franc, peseta or drachma. Only
in Italy is support for the euro
more tepid, although it is still
more popular than exiting.
In Southern Europe, the
former national currencies are
still associated with the bad
old days of inflation and repeated devaluations. In Northern Europe, economies haven’t
performed all that badly under the euro. Across the continent, the crisis years taught
most voters and politicians
that breaking up the euro
would bring massive financial
turmoil. The middle class isn’t
willing to risk savings held in
euro-denominated assets.
With Europe’s economic
recovery now finally improving after years of sluggish
growth, the argument that
countries can’t grow under
the euro is weakening. Many
economists believe the eurozone’s growth could be close
to 2% this year, a fast pace by
recent standards.
The euro remains far from
what economists call an optimum currency area. Ideally, a
currency should cover an economic zone where labor and
capital move fluidly, where
common taxes and public
spending help weaker regions
to keep up, and where the financial system has common
Italy grew less than 1%.
Political Currency
E
Despite a rise of anti-euro nationalism, the public still stands behind
the much-maligned currency.
Is having the euro a good or bad thing for your country?
BAD GOOD
Eurozone*
33%
56%
Germany
26
64
Greece
32
54
Spain
30
57
France
37
53
Italy
41
47
*19 countries
Source: Flash Eurobarometer telephone poll of 17,535 adults conducted Oct. 17-18, 2016;
margin of error: +/-3.1 percentage points
THE WALL STREET JOURNAL.
supervision and a backstop in
times of crisis.
T
he eurozone still lacks
many of these features,
even though it has
strengthened its crisis-fighting
tools. “The eurozone remains
incomplete, and there will
come a day when it faces a crisis to which the only answer is
fiscal union,” says Nicolas Veron, a French economist and
fellow at the Peterson Institute for International Economics in Washington.
Being far from optimal
meant that the eurozone took
longer than other major economies to recover from the financial crisis. For instance,
because countries couldn’t adjust through independent currency devaluation, labor costs
adjusted through painful wage
deflation instead.
Greece is one exception. Its
economy is depressed. A bigger question mark is Italy, the
eurozone’s third-biggest economy. Economic stagnation has
undermined public support
for established parties and
drawn voters toward populists
who question the euro.
But the contrast between
Italy’s failure to grow and
Spain’s recovery suggests the
fault lies at the national level,
not with the common currency. Spain’s economy grew
by over 3% last year, whereas
ven members of the 5
Star Movement say
leaving the euro
wouldn’t solve Italy’s deep
structural problems. The
party is internally divided
over its own proposal for a
referendum. Italy’s core
growth problem—stagnant,
even declining, productivity—
has been evident since the
mid-1990s, before the euro’s
creation.
There’s little evidence that
the euro is to blame for
France’s economic problems,
says Daniel Gros, director of
the Center for European Policy Studies, a Brussels think
tank. The country didn’t develop major imbalances, and
its exchange rate under the
euro was never obviously too
high, he says.
Ms. Le Pen’s main objection
is about national sovereignty.
But there are three hurdles to
her ability to pull France out.
She would need a major upset
to win the presidency. It
would be an equally big surprise if her National Front
won control of parliament in
June elections. And nearly
three-quarters of French voters oppose leaving the euro.
“The cost of breaking up the
euro is so high that this probably won’t be the consequence
of the challenge from populism,” says Christian Odendahl,
chief economist at the Centre
for European Reform, a London-based think tank.
 Investors return to Europe’s
markets......................................... B9
MIKE BLAKE/REUTERS
BY NICK TIMIRAOS
REUNITED: Members of the Reyes family hugged Sunday at Border Field State Park in San Diego during a three-minute reunion as
U.S. Border Patrol agents opened a gate to allow families to embrace along the Mexico border as part of Children’s Day in Mexico.
U.S. WATCH
At Least 14 Killed
In Storms, Flooding
At least 14 people have been
killed by tornadoes or flooding in
the South and Midwest by a
storm that also dumped a rare
late-season blizzard in western
Kansas on Sunday.
Tornadoes hit several small
towns in East Texas, killing four
people. Five people were killed
by flooding and winds in Arkansas, including a fire chief who
was struck by a vehicle while
working during the storm. Two
deaths were reported in Missouri, including a woman who
drowned after rushing water
swept away a car. One of two
deaths in Mississippi was a 7year-old who died by electric
shock, and a 2-year-old girl died
in Tennessee after being struck
by a soccer goal post thrown by
heavy winds.
Flooding closed part of Interstate 44 near Hazelgreen, Mo.,
and officials expected it would
be at least a day before the
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highway reopened. Interstate 70
in western Kansas was closed
because crews were waiting for
snow falling at 3 to 4 inches an
hour being blown by 35 mph
winds to subside.
In Arkansas, Cove Creek/Pearson Fire Chief Doug Decker died
shortly before 4 a.m. Sunday after being struck by a vehicle
while checking water levels on
Highway 25 near Quitman, about
40 miles north of Little Rock,
Trooper Liz Chapman said. The
volunteer chief's death will be
included as a storm-related
death.
A 2-year-old girl in Tennessee
died after being struck by a
heavy, metal soccer goal post
that was blown over by high
winds, the Metro Nashville Police Department posted on its
Twitter page on Sunday evening.
Rescuers in northwest Arkansas continued Sunday to look for
an 18-month-old girl and a 4year-old boy who were in a vehicle swept off a bridge by floodwaters in Hindsville, the Madison
County Sheriff's Office said.
In Texas, search teams were
going door to door Sunday after
the tornadoes the day before
flattened homes, uprooted trees
and flipped several pickup trucks
at a dealership in Canton.
—Associated Press
MONDAY: The Federal Reserve’s preferred measure of inflation, the personal-consumption expenditures price index,
is expected to show little
change in consumer costs in
March. Economists surveyed by
The Wall Street Journal predict
the Commerce Department will
report flat core PCE prices, after
a 0.2% increase in February.
WEDNESDAY: The Fed’s interest-rate-setting Federal Open
Market Committee isn’t expected to change monetary policy when it concludes its twoday meeting, though uncertainty
about the prospect of a June
rate rise lingers. Several Fed officials have indicated they expect
to lift rates around two more
times this year. Friday’s weak
gross domestic product report,
which showed the U.S. economy
grew at a 0.7% annual rate,
likely won’t be enough to prevent the Fed from raising rates
in June.
Figures to be released by the
European Union’s statistics
agency are expected to show
eurozone GDP grew at a quarter-to-quarter rate of 0.5% in the
first three months of the year.
That would be slightly faster
than has been typical of the eurozone’s recovery since
mid-2013, and would outpace
both the U.S. and U.K.
FRIDAY: The U.S. Labor Department releases its April jobs
report. The March report
showed hiring slowed dramatically from earlier in the year, but
the unemployment rate dropped
to 4.5%, the lowest level in
nearly a decade. Economists surveyed by the Journal expect the
U.S. economy added 185,000
jobs in April, up from 98,000 the
previous month.
The Fed Is Expected
To Maintain Rates
On Children’s Day in Mexico, Love Knows No Border
WEATHER
ECONOMIC
CALENDAR
CALIFORNIA
Shark Injures Woman
In Attack Off Beach
A shark attacked a woman
wading in the ocean with friends
off a Southern California beach,
authorities said Sunday.
The attack occurred Saturday
near San Onofre State Beach in
northern San Diego County.
Thomas Williams, one of several witnesses who pulled the
woman ashore, said the victim
was conscious while a rubber
surfboard leash was used to tie
off bleeding from her upper
thigh, part of which had been
torn off. “If she didn’t receive immediate care, it was life-threatening,” he said.
The beach is adjacent to the
Camp Pendleton Marine Base.
Marine Sgt. Asia Sorenson said
the victim, a civilian, was airlifted to a hospital in unknown
condition.
The injury was likely caused
by a great white or a seven-gill
shark, said Chris Lowe, director
of the Shark Lab at California
State University, Long Beach.
Several sharks have been
sighted in the area recently.
The beach was expected to
remain closed until Monday.
—Associated Press
Federal Reserve officials are
likely to keep interest rates
steady at their policy meeting
this week and drill down into
details about when and how to
reduce the bank’s large holdings of mortgage and Treasury
securities.
The challenge in their postmeeting policy statement will
be to acknowledge the handful
of disappointing economic
growth indicators since officials last gathered in midMarch without suggesting
they are ready to veer from
the policy path they have
sketched out at recent meetings. The two-day policy meeting is set to begin Tuesday.
Officials raised interest
rates at the March meeting to
a range between 0.75% and 1%
and penciled in two more
quarter-percentage point increases this year. They also
believe they are on course to
signal late in the year that
they will begin winding down
their securities portfolio.
Gross domestic product
grew at a 0.7% annual rate in
the first quarter as consumers
reined in spending despite a
surge in household confidence
surveys and a rise in stock
prices. The report isn’t likely
to cause too much alarm at
the Fed because of signs temporary factors suppressed
spending and because the
economy in recent years has
slowed at the start of the year
before picking up speed in the
spring and summer.
Inflation also weakened unexpectedly in March. The Labor Department’s consumerprice index declined a
seasonally adjusted 0.3% in
March from the prior month,
and prices excluding food and
energy fell 0.1%, the first decline for so-called core prices
since 2010.
Still, officials believe the
economy is near full employment,
meaning
inflation
should slowly build in the
months ahead. The unemployment rate fell to 4.5% from
4.7%, hitting its lowest level in
almost a decade.
Fed officials have signaled
in public statements and interviews any disappointing data
points haven’t been enough to
change their rate outlook.
Given recent seasonal patterns, “something that looks
like 1% in the first quarter—it
might be actually more like
2% in reality,” said New York
Fed President William Dudley
after an April 7 speech.
After years of pushing
down on the gas pedal, the
Fed’s job now is to allow “the
economy to kind of coast and
remain on an even keel, to
give it some gas, but not so
much that we’re pressing
down hard on the accelerator,”
said Fed Chairwoman Janet
Yellen in remarks on April 10
in Ann Arbor, Mich.
Continuing to gradually remove large amounts of stimulus “seems likely both to maximize the prospects of a
continued expansion in the
U.S. economy and to mitigate
the risk of undesirable spill-
The central bank’s
two-day policy
meeting will begin on
Tuesday.
overs abroad,” said Fed Vice
Chairman Stanley Fischer in
remarks at a conference in
Washington on April 19.
Also, potential growth
shocks from abroad, which
forced the Fed to scale back its
plans to raise rates in 2015
and 2016, have largely been
absent so far this year. More
resilient global growth is making officials less worried about
the latest batch of somewhat
discouraging domestic data.
“The global economy, which
was quite weak, now seems to
be operating in a slightly more
robust and healthier way,” Ms.
Yellen said in Ann Arbor.
With that as a backdrop, officials are comfortable with
market expectations about
their next move. Traders in futures markets placed a 63%
probability on a Fed rate increase by June, according to
CME Group.
That is up from less than
50% before the first round of
voting in the French election
on April 23. Markets rallied after centrist candidate Emmanuel Macron advanced to the final round of voting on May
7 against Marine Le Pen, the
far-right nationalist who
wants to withdraw France
from the European Union’s
common currency.
Financial conditions have
been mixed since the Fed last
met in March. Stock markets
have pulled back from their
highs earlier this year, while
bonds have rallied, sending
down yields.