EDITORIAL

Euro crisis: where to?

Ever since the EU was required to massively intervene to save Greece from financial default, the crisis of the single European currency has been unveiling quite diverse aspects subjected to a stern and equally diverse analysis in the international media.

First of all, it is an aspect that pertains to the soundness of the international system of states and capitalism as the optimal form of organisation of the economic and financial ensemble. To some of the commentators dealing with the subject, the Greek crisis was the signal that triggered a large-scale systemic change. They – and some are people with a solid background in financial history – were not afraid to state that Greece was only foretelling the collapse of the U.S systemic hegemony settled in the aftermath of WWII.

Second of all, to some others – I would add they probably represent a majority – it was the beginning of a series of cascading financial collapses of countries in the euro zone and, by that, the European Union representing a ‘success story’ of the new integrative trend, therefore of a systemic transformation in the sense of going beyond the inherent feature of competition and conflict (war), was doomed to disappear. In the context, numerous arguments have been brought to show that the danger of economic protectionism was real and that it would obviously determine a re-nationalisation of the foreign policy of the actors in the system, in other words a return to the old paradigm of global anarchy.

Third of all, another aspect extensively analysed in the international media has been emerging China, seen as a ‘dragon’ accelerating towards the top of the international system, using its remarkable financial force to calm down’ the tsunami set in motion by the 2007-2008 crisis. As for the European Union, it has been noted that Beijing, through high-ranking envoys, had been making very attractive financial proposals promising money ‘injections’ in the European states threatened by financial collapse.

And last, but not least, there have been some very cautious analysts who said that, practically, the West will successfully overcome the financial crisis and the convulsions in the euro zone are just the reflexes of the systemic crisis, which can be solved by adequate measures, with the EU continuing to be one of the most important global economic actors.

Of course, during the period since the salvaging intervention in Greece, there have been other countries that followed down the same path. People started to talk insistently about the unbearable difficulties of the euro zone that would not longer allow the EU to survive, as well as about how such eventuality could be avoided (including the return of the states to their respective former currencies to be able to employ the ever-saving inflation tool). Ireland was the second country to seek bailout from the EU (the organisation has set up a formal financial anchor in that respect). The worst anticipations came true and soon – two weeks ago – the third country followed: Portugal, who also had to resort to the EU assistance to debt default.

Without going into too much detail – because each inflationist crisis had its own genesis and history, as well as distinct evolution (negative in the case of the former two, where the huge deficits were subsequently joined by sovereign debts) – one has to note that the category of analysts who anticipated a snowball effect among other countries on the verge of default, after Greece, seemed to have been right.

As soon as Portugal manifested its willingness to turn to the EU bailout package to balance its finances, the choir of the Cassandras started to speak about the next country on the ‘list’, namely Spain. The ‘premonitions’ were so worrying that the EU finance ministers, gathered in Hungary ten days ago thought it would be advisable to make some reassuring statements on the matter: ‘The risk of contagion has lessened,’ said  German Finance Minister Wolfgang Schaeuble . ‘Not that our worries have passed, but we’re on the right track.’ The German minister should know what he is talking about, Germany being the country that has been in the lead of EU efforts and decisions for overcoming the crisis. Of course, his hesitations referred to the fact that Spain presents the picture of a high unemployment rate (20 per cent), as well as that the Spanish Government has not carried out measures to re-capitalise banks hit by the collapse of the property market.

Of the various readers’ comments on the various analyses regarding the likelihood of Spain being on the verge of default I will only quote two just to give an idea about the destiny of the European economy and of the political future of the continent. One of them ‘The Euro is a political animal. I think it would need a war to destroy it or break it up.‘ causes us to think that everything needs to be done in order not to lose the war on the Old Continent. The second one – ‘China will bail out Europe to whatever degree is necessary if the EEC really has problems. At the very least they’ll buy Spanish and Portuguese bonds.’ – shows that current globalization could offer some unexpected and even salvaging solutions.

Portugal’s request made two weeks ago to draw on the European bailout package – it needs about EUR 60 bln – may not be granted, with the Finnish legislative election offering a surprise In the pre-electoral polls, the parties that oppose Finnish tax-payers money being directed to countries that have been unable to wisely manage their respective economies were in the top preferences of the voters. The election confirmed the trend. Of course that the EU has already got a back-up plan in place for such situations, but the new development itself shows just how difficult and delicate the matter is in Europe in circumstances like these, compared to the U.S that is a federal state. Spain is by no means Florida – press comments suggest – because, while the former is part of an organization that is led in an intergovernmental formula, the latter is part of a political federation.

On the other hand, we will, no doubt, see some unexpected developments in the future. The stress tests set to be conducted on big European banks – German ones included –  will probably reveal a very important ‘toxic’ side. Der Spiegel was writing a few days ago that ‘Were genuine stress tests to be carried out in the European banking system today, they would undoubtedly reveal capital requirements of hundreds of billions of euros, most of which would inevitably have to come from European taxpayers. That is obviously an outcome that European political leaders would prefer to avoid, given ordinary citizens’ reluctance to pay for another banker’s bailout.

A common European plan encompassing several years, as the U.S did back in the 1980s to overcome the South-American crisis (the Brady plan) will also be a good opportunity to demonstrate the unity and political vitality of the EU and not just its economic performance.

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