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

Video VOA ‘Town Hall’ Shines Light on Ebola Crisis

Experts call for greater speed in identification and treatment of deadly disease More

UN Rights Commission Investigates Eritrea

Three-member commission will start collecting first-hand information from victims and other witnesses in Switzerland and Italy next week More

Funding Program Helps Extremely Poor in Ghana

Broad objective for Ghana's social cash transfer program is to lessen the impact of poverty on the most vulnerable people, elderly, orphans, those with disabilities More

This forum has been closed.
Comments
     
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.
Ebola Economic Toll Stirs W. Africa Food Security Concernsi
X
November 19, 2014 11:39 PM
The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.
Video

Video What Jon Stewart Learned About Iran From 'Rosewater'

Jon Stewart, host of the satirical news program "The Daily Show" talks with Saman Arbabi of Voice of America's Persian service about Stewart's directorial debut, "Rosewater."
Video

Video Lebanese Winemakers Thrive Despite War Next Door

In some of the most volatile parts of Lebanon, where a constant flow of refugees crosses the border from Syria, one industry continues to flourish against the odds. Lebanese winemakers say after surviving a brutal civil war in the 1970s and 80s, they can survive anything. Heather Murdock has more for VOA from the Bekaa Valley in Lebanon.
Video

Video China's Rise Closely Watched

China’s role as APEC host this week allowed a rare opportunity for Beijing to showcase its vision for the global economy and the region. But as China’s stature grows, so have tensions with other countries, including the United States. VOA’s Bill Ide in Beijing reports on how China’s rise as a global power is seen among Chinese and Americans.

All About America

AppleAndroid