January 10, 2011
Since last December, the credit rating agencies, economic pundits and the transatlantic financial media have intensified their dire predictions regarding the euro’s chances of survival. This, however, should come as no surprise, as the eurozone governments are expected to sell no less than 850 billion euros in government paper in the first trimester of 2011. Granted, the latest Irish bond issue has been rather well-received by the markets, thanks to the IMF/EU bailout package. Portugal and Greece, on the other hand, have seen their spreads soar, as both countries find it difficult to reassure markets about their ability to repay outstanding debts, whether public or private.
Despite the recent IMF thumbs-up concerning the euro, even Deutsche Welle is talking the euro down. It has recently published surveys about growing anti-euro public sentiment in Germany and the possibility of a return to the deutschemark. It has also quoted Barry Eichengreen as saying that the EMU is only one monetary union among 69 others before it, therefore Germans shouldn’t be too worried about leaving it, if push came to shove. Finally, the Slovakian economic minister has refused point blank to help towards supporting the Greeks in their plight, proposing their eviction from the euro-club instead.
Such unhealthy talk comes in the wake of a huge financial crisis, one during which the euro has proved its ability to absorb the shock and protect member countries from total ruin. To be sure, the EMU is not just another monetary union – but the monetary union, designed to achieve true economic integration among eurozone members, which is actually accelerating as we speak.
Still, professor Eichengreen was right when he assessed as slight or non-existent the ability to repay in full the creditors of Greece, Ireland or Portugal. The sheer size of the loans recklessly made to these countries in relation to the size of their economies is, by any measure, staggering. Accordingly, the sooner European politicians – Ecofin members in particular – agree to give the green light to country debt-restructuring, the better for all concerned. Indeed, one cannot realistically expect countries like Germany, France and others to foot the bill for debts incurred by irresponsible governments or private bankers at Europe’s periphery.
Delaying until 2013 “haircuts” that could be agreed upon with creditors as early as 2011 would only prolong the pain of Greek, Irish or Portuguese citizens. Unfortunately, austerity measures have not, as expected, brought more money to their countries’ budgets, but have only reduced consumption and increased unemployment instead. (sources: Project Syndicate, Les Echos, Reuters, Deutsche Welle)Florian Pantazi