At a very high-level banking conference in Paris last week, conducted behind closed doors so no names can be cited, this columnist heard the most cogent and persuasive case for the euro yet presented by a top-ranking European finance official, a German.
He made three main points. The most important was that the trading imbalances and loss of competitiveness that had provoked the crisis were being swiftly reversed.
"Unit labor costs in Germany have risen by 3 percent this year so far and they have fallen in Greece by 8 percent. The competitiveness gap between northern and southern European counties has been cut by more than half," he said.
"Unit labor costs in Portugal, Ireland and Spain have plunged to below the eurozone average and are still falling. Their exports are rising. The adjustment is happening and the policy is succeeding."
His second point was that most EU countries were steadily getting their fiscal house in order by cutting public spending and increasing revenues.
"In the eurozone as a whole, the average budget deficit was 6 percent of GDP in 2009 and 2010. Now the average deficit is dropping sharply and should be at 3 percent by next year," he went on.
"Deficits are thus on an improving trend and will improve further over the longer term because key southern European countries have introduced far-reaching pension and labor market reforms. The banks are being recapitalized and firewalls are in place, along with financial provisions for future emergencies."
His third point was that the European summit in June had taken some fundamental strategic decisions which amounted to a long-term plan to ensure that the eurozone never flirted with such disaster again. It had agreed on a centralized supervisory regime for Europe's banks and for its various national budgets, to be monitored and run by the European Central Bank and by the European Commission in Brussels. The details were still being hammered out but would include a Europe-wide deposit insurance scheme for banks within the context of fiscal and economic union.
A new strategic planning group had been established, dubbed the Four Presidents. They were President of the EU Council Herman Van Rompuy (a Belgian), President of the EU commission Jose-Maria Barroso (from Portugal), President of the eurozone Jean-Claude Juncker (Luxembourg) and President of the ECB Mario Draghi (Italy). They are to produce a draft plan this month, which would be circulated around European government and be finalized at the EU summit in Brussels in December.
So far, so good; but then the official then made another point, which pointed to the real risks still ahead.
"The adjustment is working but this is not yet a path to growth. Real incomes must continue to shrink to regain competitiveness. This is painful but necessary and should lead to an eventual long-term real annual GDP growth of 1 to 2 percent," he said.
It was pointed out that Europe is made up of democracies and that unemployment and social unrest in Greece and Spain were reaching alarming levels. During some bitter negotiations last month between the Greek government and their European partners, the Greek finance minister had pointed to a bullet-hole in his office window and asked how much more pain could his people be expected to take.
"Distinguished American economists have told us that our path is politically not sustainable," the official commented. "But countries are cutting wages and pensions by 20 and 30 percent, which is why the adjustment is succeeding. The textbooks may say this is politically impossible but I am now waiting for the textbooks to be rewritten."
We shall see. The best case the euro-elite can make is that their policy of austerity and readjustment is showing results, but is in a difficult race against the stiffening political resistance of European voters which is in turn sapping the will of their elected governments.
And this will be a long haul. France, after three successive quarters of stagnation, is heading into recession and unemployment has just topped 3 million. In Spain, Portugal and Greece, recession is cutting government revenues and thus postponing yet further their pledges to bring down budget deficits.
Above all, the German powerhouse is slowing. The closely watched Ifo survey of business confidence dropped unexpectedly in September for the fifth month running, implying a slowdown. Capital investment fell 0.9 percent in the second quarter, with spending on plant and machinery down 2.3 percent. The Federal Labor Agency's IAB research institute last week predicted that the German economy will expand 0.6 percent in 2012 compared with 3 percent last year.
And those grandiose plans for a eurozone federal union have yet to run the gauntlet of Germany's skeptical constitutional court and the various referendums required in the member states. Current opinion polls suggest that the Dutch, French, Finns and Germans will vote No.
Maybe the elites are right and Europe can pull through, despite the difficult context of slowdowns in France and Germany, its two key economies but if the political will falters, the elites have no plan B.
"We are doing this because there is no alternative," the official in Paris said. "We have to convince the markets that the euro is unbreakable."