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

Photogallery South Africa Bans Travelers From Ebola-stricken Countries

South Africans returning from affected West African countries will be thoroughly screened, required to fill out medical questionnaire, health minister says More

Multimedia UN Launches ‘Biggest Aid Operation in 30 Years’ in Iraq

Move aims to help thousands of Iraqi religious minorities who fled their homes as Kurdish, Iraqi government forces battle Sunni insurgents More

Video African Media Tries to Educate Public About Ebola

IT specialists, together with radio and TV reporters, are battling misinformation and prejudice about disease 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.
Gaza Conflict, Hamas Popularity Challenge Abbasi
X
Scott Stearns
August 21, 2014 9:20 PM
The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Gaza Conflict, Hamas Popularity Challenge Abbas

The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Nigeria's 'Nollywood' Movie Industry Rolls in High Gear

Twenty years after its birth in a video shop in Lagos, Nigeria's "Nollywood" is one of the most prolific film industries on earth. Despite low budgets and whirlwind production schedules, Nigerian films are wildly popular in Africa and industry professionals say they hope, in the future, their films will be as great in quality as they are in quantity. Heather Murdock has more for VOA from Lagos.
Video

Video UN Launches 'Biggest Aid Operation in 30 Years' in Iraq

The United Nations has launched what it describes as one of the biggest aid operations in 30 years in northern Iraq, as hundreds of thousands of refugees flee the extremist Sunni militant group calling itself the Islamic State. As Kurdish and Iraqi forces battle the Sunni insurgents, the fighting has forced more people to flee their homes. Kurdish authorities say the international community must act now to avert a humanitarian catastrophe. Henry Ridgwell reports for VOA from London.
Video

Video Cambodian American Hip Hop Artist Sings of Personal Struggles

A growing underground movement of Cambodian American hip hop artists is rapping about the struggles of living in urban America. Most, if not all of them, are refugees or children of refugees who came to the United States from Cambodia to escape the Khmer Rouge genocide of the 1970s. Through their music, the artists hope to give voice to immigrants who have been struggling quietly for years. Elizabeth Lee reports from Long Beach, California.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video Ferguson Calls for Justice as Anger, Violence Grips Community

Violence, anger and frustration continue to grip the small St. Louis suburb of Ferguson, Missouri. Protests broke out after a white police officer fatally shot an unarmed black teenager on August 9. The case has sparked outrage around the nation and prompted the White House to send U.S. Attorney Eric Holder to the small community of just over 20,000 people. VOA’s Mary Alice Salinas has more from Ferguson.
Video

Video Beheading Of US Journalist Breeds Outrage

U.S. and British authorities have launched an investigation into an Islamic State video showing the beheading of kidnapped American journalist James Foley by a militant with a British accent. The extremist group, which posted the video on the Internet Tuesday, said the murder was revenge for U.S. airstrikes on militant positions in Iraq - and has threatened to execute another American journalist it is holding. Henry Ridgwell has more from London.
Video

Video Family Robots - The Next Big Thing?

Robots that can help us with daily chores like cooking and cleaning are a long way off, but automatons that serve as family companions may be much closer. Researchers in the United States, France, Japan and other countries are racing to build robots that can entertain and perform some simpler tasks for us. VOA’s George Putic reports.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.

AppleAndroid