Another eurozone crisis, and this time it's serious

Nov 10, 2011

An imbalance in Europe's economies threatens the euro, but leaders are in denial

THE LATEST crisis in Italy has brought the eurozone saga to a head. But Europe's leaders are in denial and have failed to address the underlying issues which threaten to plunge Europe into another recession.

Time for action
We've been through so many euro crises by now, so many desperate cries, that it's tempting to just roll our eyes at the latest crisis over Italy, says an editorial in The Independent. "But it is serious now." Not one country but the whole eurozone may be breaking up.

The latest issue of Italy's unsustainable debt and skyrocketing borrowing costs has actually been building up for months but eurozone leaders "have simply failed to nip it in the bud". The means to resolve the situation are there, in the European Central Bank and the IMF, "if only the eurozone governments and the international community were willing to deploy them".

Not a penny more
Indeed, the eurozone is reaching the point of no return, and it's becoming a disaster for the global economy, says an editorial in The Daily Telegraph. Yet Germans are unwilling to allow the ECB to intervene as a lender of last resort, and Italy is forced into greater austerity measures, which restrict growth and precipitate the downward spiral.

The IMF may be forced to step in, creating a significant liability for the British Exchequer, adds the Telegraph. But, while it would be in our interest to stave off a financial meltdown, "the IMF must not be used as a piggy-bank for eurozone countries unwilling to dip into their own pockets".

The day we dreaded is now upon us, says an editorial in the Daily Mail. "Little short of a miracle can save the West from a devastating double dip recession."

Fortunately, Britain's debt is under control and we have to pay much less interest than other EU governments, adds the Mail. "We must not squander this advantage at the altar of a currency we refused to join." David Cameron swore that British taxpayers would not contribute an extra penny through the IMF to bailing out the eurozone. "He must stick to his word."

Eurozone must become more German
If the eurozone is saved, says Timothy Garton Ash in The Guardian, it will be on German terms. The budget, debt and wage discipline practised by Germany over the last decade and what it seeks for the eurozone, "is precisely what Europe needs". And Britain must also take this argument seriously.

But Germany has to ask itself how realistic it is to expect the majority of Europeans to act like Germans, adds Garton Ash, and "if they did all become champion savers and exporters, who would by their exports?"

Actually, Germany is the problem
The underlying issue, and one Euro leaders have been "unwilling to confront", is the imbalance of funds within the eurozone, says Paul Krugman in The New York Times. The four most troubled nations (Italy, Spain, Portugal and Greece) have a combined current account deficit of $183 billion which is almost exactly offset by Germany's current account surplus of $182 billion. "This imbalance is a relatively recent development, coinciding with and almost surely caused in large part by the creation of the euro itself."

What is needed is a transfer of funds from the richest core nations, to the periphery. Instead, eurozone leaders in denial are forcing austerity on the deficit countries, without matching expansionary policies in countries such as Germany. "The result is a eurozone headed for recession, and one in which a break-up of the euro itself is looking ever more possible."

Cartoon courtesy of Political Betting.

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