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

Multimedia Brussels Schools, Metro Reopen Under Heavy Guard

City remains under the highest threat alert level due to what authorities have described as a 'serious and imminent' threat of attack

Video Debt-ridden Refugees Await Onslaught of Lebanese Winter

Aid agencies are attempting to reduce potentially devastating consequences of freezing conditions and snowstorms that killed eight last year, including three Syrian refugees

Americans Think About Strange Stuff at Thanksgiving

Millions of Americans are celebrating Thanksgiving, but they’re not necessarily thinking about turkey and stuffing

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.
After Paris Attacks, France Steps Up Fight Against ISi
November 24, 2015 3:04 AM
The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs