News / Europe

Currency Crisis Wider and Deeper Than Euro-Zone

Financial markets remain jittery and the euro has continued to decline despite a $1 trillion aid package, put together by the European Union and the International Monetary Fund, to stabilize the currency.  It was a crisis that began in Greece, but now threatens other countries that use the euro and beyond.  And, many wonder whether Europe can dig out and at what cost.    

The euro had been a success story since it first came into use about 10 years ago.  It defied the critics who said it would never work as the single currency of even part of the European Union.  Used by part of the European Union - known as the Euro-zone - it was stable, rose in value, and became the de-facto second currency of choice behind the U.S. dollar.

But in recent months things began to unravel, and it all started in Greece.  The immediate reason was simple and some two decades in the making, says economist Spyros Economides of the London School of Economics.

"The Greek government, the state and inevitably the Greek people have been spending more money than they have been earning.  So, at some point the debts got to a stage that the Greek government could no longer afford to repay interest and capital on loans that were made on international money markets to fund the phenomenal growth in credit, which had been the hallmark of the Greek economy for the last few decades," he said.

Economides says the global economic crisis also played a role. "It is a combination of an accumulated debt over an extremely long period of time, combined with the global financial crisis which has made the market place extremely jittery about having loans, which may be bad, towards states that are heavily in debt," he said.

And with Greece at a point of not being able to repay debts coming due, it turned to other European countries for help.  The European Union and the International Monetary Fund provided a $140-billion bail-out package for Greece to draw on.  Billions more have been put in place to try to stabilize the euro.

Greece is not the only Euro-zone country with a massive debt, says political analyst Christian Schweiger of Durham University in northeastern England. "If you look at Italy, where the annual borrowing is not as excessive as in Greece, but the total level of public debt it is almost 100 percent sometimes above 100 percent [of annual GDP].  It simply shows that there is no budget discipline," he said.

Other countries singled out for fiscal excesses and massive debts are Spain and Portugal.  

Greece has announced severe austerity measures and Spain and Portugal have followed suit.  

"The key is to pre-empt a swift decline by taking necessary measures which will be easier to do now than to do at the very last minute as happened with Greece when they have to be far, far more severe and could lead to the kind of social unrest which we have seen in Greece," said Economist Spyros Economides.

Economides says he believes that Spain and Portugal are better placed than Greece to begin paying back their debt.

But austerity measures are needed and that means cutting back on social programs says Christian Schweiger.

"If we have a budget crisis in individual countries then obviously they will be asked to cut back.  If you look at the European Union as a whole and not just the Euro-zone - there is certainly a tendency to ask countries to limit public spending," he said.

That will not be popular and Schweiger says it could lead to an erosion of public support for the European Union, especially in countries with high welfare spending.

European countries pride themselves in their generous social safety net - from unemployment benefits and pensions to health and education.  Will that have to be scaled back to the point of being lost?  Spyros Economides, thinks not.

"The European Union member states have a lot of things in common one of them being that their economic and social model does provide for those less well off in society, for whatever reason, there is a safety net in place," he said.

But, many economists, including Economides, say there is a fundamental flaw in the Euro-zone that hampers long-term sustainability of the currency.

"That is the fact that there is no European government, there is no interventionary authority that can provide the fiscal background to this particular monetary organization.  This crisis has made patently clear is that the interventionary powers of Brussels are limited," he said.

And, that is not likely to change, says Christian Schweiger.

"It is something the European Commission tries to do.  They for a number of years have been trying to advocate the coordination of economic policy making. Although the aspiration is there, I do not think it will happen to a large extent," he said.

In or out of the Euro-zone, E.U. countries are loathe to give up any more power to headquarters in Brussels.  But, Schweiger does not think this spells the death knell for the euro - because he says there are political as well as economic aspirations behind the monetary union.

Spyros Economides believes the immediate crisis may have been remedied, but there is a warning. "I think this is such a big crisis that it is going to be coming back to haunt us for the foreseeable future," he said.

He says that is because of the structural flaws in the Euro-zone.  And another warning from many economists - damage to the euro also hurts  countries outside the Euro-zone that trade heavily with it, and in today's globalized economy, many stand to lose.

You May Like

Guatemala Mudslide Death Toll Rises to 86

Death toll is expected to continue to rise as emergency crews dig through tons of earth for an estimated 350 people still missing More

Debris Found in Search for Missing Ship

Objects located Sunday have not yet been confirmed to be from the 240 meter container ship, El Faro, which disappeared in the eye of Hurricane Joaquin, according to US Coast Guard More

Survivor: Gunman Spared 'Lucky One' to Give Police Message

Law enforcement official says a manifesto of several pages was recovered; contents not revealed More

This forum has been closed.
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs