Jeremy Hobson: If you want to get an idea of how the eurozone debt crisis is going, you can check European stock markets -- they were up today. You can check European bond markets and see how much each country has to pay to borrow money -- borrowing costs have been relatively low this week. You can also check how the euro currency is stacking up against other currencies -- and today, the euro hit its lowest level against the dollar since September of 2010.
But to get the big picture, we're going to turn now to the man who's been our principal guide through the crisis. That would be Marketplace's Stephen Beard in London, who joins us for a euro year in review. Hi Stephen.
Stephen Beard: Hello Jeremy.
Hobson: So I guess the big question we have to start with is: This crisis in Europe has been going on for a couple of years now, why hasn't it been solved?
Beard: It hasn't been solved because it's not one crisis, but three. The three crises are first of all, a government debt crisis. Some of these governments in Europe are struggling to pay their way. There's also a banking crisis with lots of big banks in the eurozone sitting on potentially huge losses from the government bonds they're holding. And it's a currency crisis with 17 countries all linked together in the one currency with the danger that if one of them falls off the mountain, there's a danger he'll pull the others off after him.
Hobson: And I guess if we're looking back at 2011, we really have to look back at Greece. How are they doing?
Beard: Well Greece is tiny. It's only 2 percent of the eurozone economy, but Greece hasn't begun to solve its problems yet because it's in this currency union. Let's look at what would happen if Greece had its own currency again, the drachma. So, it defaults. Its central bank then prints a ton of drachmas to keep the country's banks from going bust. And it devalues its currency. A slump in the value of the drachma makes Greece's exports much cheaper, it also makes Greece a much cheaper holiday destination. And in time after some pain and disruption, the Greek economy begins to grow again. But trapped inside the eurozone, Greece can't default because the big countries in the eurozone that lent it the money -- principally France and Germany -- they have forbidden Greece from defaulting. So Greece is locked in this downward spiral.
Hobson: And you mentioned Germany and France, the two biggest economies. They've been making a lot of decisions when it comes to dealing with the European debt crisis. How have they done this year?
Beard: In a word, badly. And I think that's an almost universal judgment. It's almost slightly reminiscent of this curious case of mass hysteria in the European city of Strasbourg in the early 16th century, the dancing plague. Hundreds of people took to the street and started dancing and the local authorities thought the best way to deal with this was to hire some musicians.
Hobson: Let them dance some more.
Beard: Indeed. It didn't really work. Up to 400 in the end danced non-stop for a month. Now Germany and France have done something a bit similar over the debt crisis. They have insisted on countries like Greece cutting their public spending, reducing their debt. They've made matters worse. It's the dancing plague all over again.
Hobson: So as we look forward to 2012, is the music going to stop for Europe? Is the euro going to fall apart or is it going to stay together?
Beard: When I was in Brussels recently, I met a politician who's absolutely convinced the euro is doomed. In fact, he keeps a coffin with a euro painted on a lid sitting on his desk. He's Nigel Farage, head of the U.K. Independence Party. Heere's what he thinks of the euro.
Nigel Farage: The euro itself is what has caused hte problem. The euro is the problem.
He says currency unions usually do fall apart. If this one will is very much an open question. But it's a fairly safe bet that this currency union will survive quite a while longer. And my most confident prediction for the new year, Jeremy, is we'll certainly be talking about this again in 2012.
Hobson: Well at least we've got you to help guide us through it. Marketplace's Stephen Beard in London, thanks so much and happy new year.
Beard: And you, Jeremy.