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Financial Crisis Roiled Euro Zone in 2010

Financial Crisis Roiled Euro Zone in 2010
Financial Crisis Roiled Euro Zone in 2010
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Europe's single currency, the euro, was supposed to merge European countries into one robust monetary union. But the euro zone is as weak as its weakest link and that's a reality that can't be ignored as 2010 comes to a close. The financial crisis tested the bonds that hold Europe together and left a question mark over the future.

Recent protests in Ireland were typical of Europe in 2010.

Sovereign debt, spending cuts, and social unrest were a familiar sequence across the EU.


In 2010, Europe's single currency, the euro, was put to the test.

Greece was the first hotspot. The massive debt meant markets lost confidence in the country's ability to pay up.  

European leaders scrambled to strengthen the weak link, pouring more than $100 billion into the Greek economy. And creating a fund for future crises.   

Only six months later, when Ireland faced its own financial crisis, the money it needed was available.  

Iain Begg from the London School of Economics says it showed the euro can weather the storm. "This is characteristic of the way Europe operates.  It waits for something to go wrong and then in the process of finding a solution moves forward to a greater degree of integration, while still respecting the rights of individual member states," he said.

But even stronger economies, like France, face major debt. Cuts in public spending have sparked repeated strikes and massive protests.  

And leaders have struggled to balance the needs of their own countries with those of Europe.

Even Germany, long a key motor for European unity, hesitated before using taxpayer money to bail out other European economies.

National needs remain a top priority, says Begg. "It was never really going to be a United States of Europe and more a united Europe of states, and that's really what we're seeing now," he said.

After two World Wars tore the continent apart, visionaries imagined a Europe at peace, united politically and economically.

Simon Tilford is chief economist at the Center for European Reform. He says the financial crisis has left that vision in tatters.

"Unfortunately, the necessary solidarity has been eroded by the financial crisis. The electorates of countries that have been asked to guarantee loans to the other member states are strongly resentful of that because they think why should we do that. We're rewarding them for their profligacy, or what have you.  And that makes it much harder for governments to actually argue the case for the kind of integration necessary to put the whole thing on a more sustainable footing going forward," he said.

That might also be a major problem in the coming year.

Portugal, Italy and Spain could soon need bailouts of their own.  

And it could be difficult for European leaders to convince their electorates to dole out more cash.

Vanessa Rossi, from the research group Chatham House, says in 2011 Europe will have to decide on the strength of the bonds that hold it together. "The choice here in the system is for the member states to decide, are they going to have a club where they guarantee to back every member whatever  the cost and whatever the circumstances.  Or are they going to have a union where they say, no, we actually will accept that sometimes member states can have difficulties and that the investors in those member states will have to share part of the haircut, part of the pain, when the restructuring happens," he said.

Or EU countries could be allowed, she says, to default on their debt.

But that could mean the unraveling of the EU and the end of a dream built over many decades.

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