26. eurozone is doomed

Eurozone is Doomed to Collapse

Barkalina, Daniliuk, 501

Introduction

With many member nations of the European Union beginning to show serious signs of economic meltdown, the fate of this unique economic alliance is becoming a question now more than ever before. If the last few years are going to tell us anything, it is that there is a great divide separating the “haves” and “have nots” of Europe. That cannot but cause political controversies which have recently reached the point when the very existence of the EU is questioned. So will this financial crisis (an economic recession caused by a lack of necessary liquidity in financial institutions, according to a common definition) become a new opportunity or a new danger for Europe (according to the Chinese definition of crisis)?

Today, as a member of the European Parliament from Spain I would like to share my view on the future of the United Europe with a member of the European Parliament from Germany.

Spain: The first thing which comes to mind when speaking about economic crisis is growth retardation. Now it is observed in all the countries of the EU. Even in Germany, quite a prosperous country, economic growth has slowed sharply in 2012. The German economy grew by 0.7% in 2012, a sharp slowdown on the previous year when there was a 3% growth. In view of such alarming tendency the German government has slashed its forecast for economic growth in 2013 from 1.6% to 1%. How can you comment on that?

Germany: But the situation is not so grave after all. Although the Eurozone does not enjoy vigorous economic growth at the moment, it is all about economic cycles. As you know, economic cycle means fluctuations in production, trade and economic activity in general that occur over months or years in any economy organized on free-enterprise principles. What I want to say is that the cycle consists of periods of growth or boom and periods of recession. So what we now have in Europe is just another decline that will be followed by another period of growth. According to the experts, the crisis can last for 10-20 years, but nobody says it will last forever.

Spain: Well, the picture you are creating here is so pacifying, as if you were unaware of the Spanish situation. 24,3% of Spaniards are unemployed, job queues at labor exchange are endless, people are working for peanuts, one in four Spaniards are at risk of poverty or social exclusion…

Germany: Maybe the problem is just that they do not want to work if their salary is not so high? Do you see what I mean? Young people graduate from universities, they are inexperienced and lazy sometimes. But they all want to be white collars who earn 2 000 dollars even if it means they will not be able to find a job right now. They choose to join the job queues instead of finding a job in some other sphere where jobs do exist, for example becoming a sales person.

Spain: Perhaps, there is a grain of truth in what you say, but let us turn to Greece then. The state of the economy is so desperate that even the retired don’t hesitate to protest. The elderly have faced two pension reductions since 2010 and demonstrators also say they are suffering problems obtaining medicines as the national social insurance fund is lacking funds. Didn’t they work diligently all life? Don’t they deserve a decent old age? However, the austerity measures led to more tragic events. In a country that has had one of the lowest suicide rates in the world there has been a 40% surge in the number of suicides. The most shocking one was committed by a cash-strapped Greek pensioner, who shot himself dead in Athens’ main square. In his death note he said he feared having to “scrounge for food”. If people opt for death, Europe is undoubtedly doomed. Evidently, the system doesn’t work or else it is poorly managed.

Germany: I just do not understand what you want to say. The system is great, it is democratic, all the countries have equal rights. What is more we have a single market that is the core of the EU along with corresponding regulatory policies in such areas as antitrust, consumer protection, environment protection. This unity and interdependency of the European countries provides enormous material benefits for each of them. That is why not a single major European politician favors withdrawal from the EU.

Spain: Sorry to interrupt, but perhaps that is the reason? Common market, everyone is equal. Nevertheless, potential and economic power of various economies is different. It is a common fact that there is a great divide separating the “haves” and “have nots” of Europe, the North and the South. This divide also complicates the ECB's task to overcome the crisis. Northern countries are showing signs of emerging from the euro zone's three-year-old debt crisis, and countries such as Spain and Italy are in deep recession.

Germany: In spite of all our differences, the European countries are just too interdependent. The recent crises and the risk for the stability of the euro area have underlined vividly this interdependence and exposed the vulnerability of Member States, in particular inside the euro area.

The only problem is that heavily indebted countries do not want to live within their means. They borrow again and again – and provoke the crisis. And now they need a bailout, so other countries have to foot the bill. However even in Germany the people are not willing to shoulder the burden of the southern countries debt load.

On September 12, 2012 Germany’s Constitutional Court has ruled that the €500-billion bailout is legal under German law. However the court had to review a petition, signed by some 37,000 Germans, against Chancellor Angela Merkel’s plan for a new economic bailout for troubled Eurozone countries.

Spain: Pardon me, you are being inconsistent. You stand for United Europe while you refuse to aid other nations to get over the recession. Besides, everyone is blaming the South for the crisis. However, it is the Germans who rigged the EU in their favor. Germany is the world’s third-largest exporter, after China and the United States (and closing rapidly on the No. 2 spot). By forming a free trade zone, the Germans created captive markets for their goods. During the prosperity of the first 20 years or so, this was hidden beneath general growth. But once a crisis hit, the inability of Greece to devalue its money — which, as the euro, was controlled by the European Central Bank — and the ability of Germany to continue exporting without any ability of Greece to control those exports exacerbated Greece’s recession, leading to a sovereign debt crisis.

Germany: Maybe it is part of the problem. But let’s take inflation to show that nothing out of the ordinary is going on. Everyone is mad about it: it has been on the increase and reached 3% in 2012. However now it is almost 2%, it is falling. So it has been just another economic cycle. As it was before in 2001 when inflation reached 3.1%. So the situation is actually stabilizing.

Spain: I’m sorry, I don’t quite understand. What is stable about the situation? Unemployment has reached its highest level ever – 11% in Eurozone, 26% in Spain, 11% in Italy. People are worn out by uncertainty and deteriorated living conditions. Outbreaks of social unrest have regularly taken place. In France a massive general strike took place at the end of January. Recently, more actions took place in Greece with Greek farmers setting up roadblocks. Society at large does not support the EU policy, a vivid example – public outcry upon Bankia bailout in Spain. The effective nationalization of Bankia bank raised concern the government may be on the hook for further funds to prop up its fragile banking sector. The Spaniards are denouncing the multibillion euros rescue of the country’s third largest bank, considering a raid on citizens’ pockets.

According to the ETUC (European Trade Union Confederation), social unrest across Europe is likely to intensify because even more people in recession mired countries are irritated by the eternal problem of stratification. The rich are getting richer and the poor are growing poorer. This factor is also fueling the unrest. In Germany, for example, 40, 000 thousands of people in 40 cities have protested for the introduction of taxes on wealth and financial transactions demanding a more equal society. According to the organizers, almost 99% of wealthy people are not paying additional taxes.

The tax alike was introduced in France. The citizens with the income exceeding 1 million euro are to pay 75% tax. It is not surprising that the reach didn’t welcome changes in taxation. For example, Gerard Depardieau renounced his citizenship in the country to protest France's high taxes.

Germany: I see your point, but won’t you agree that EU is not doomed if we at least try to work instead of striking? If we admit we need to adopt austerity measures, pass spending cuts. Common people are always discontented. But the politicians and economists must not push the panic button. They have to go ahead and tackle this crisis somehow.

Spain: but this is the main reason of the EU collapse. The countries are not ready to co-operate, politicians are forced to put the interests of their countries ahead of the interests of the union. For instance, Germany is eager to impose more central control over national budgets to protect the interests of its own economy, especially banks that lend to Italy, Spain and Greece. At the same time Britain is against the increase of central control and strict budgetary rules. Even the IMF issued a stark warning that the lack of decisive action by European governments and institutions risked tipping the global economy into deeper crisis.

The governments are unable to find a common ground while the community calls for swift action on the debt crisis. In the EU Summit that took place on February, 7 the British Prime Minister David Cameron used his veto to block a new EU-wide treaty and left at least 23 other countries to forge a pact to salvage the single currency. Thus, because of British naysaying the future of the union was jeopardized.

What is more, economic crisis triggers disturbing separatist sentiments in some countries. The regional government of the most prosperous part of Spain Cataluña is calling for separation claiming that the region is putting in a way more than it gets in return. It is possible that other countries which are in the state of recession will call for separation to have a hand in the currency and keep the path to economic recovery on track. Enough is enough

Germany: You are making a mountain out of a molehill. All these problems can be solved. Of course, Britain may want more freedom, this country is not so dependent on the EU, it also has lots of partners from the Commonwealth. But even if Britain leaves the EU (53% of the British voters do want to leave) this will not mean the EU collapse, just a strong country’s exit. For all the other countries the cost of dropping out of the union is too high. That is why the “Unravelling scenario” is hardly probable.

What is more, and I would like to underline this, we are not talking about the EU common policy failure, because there is none. The Member States have taken coordinated and determined action: this included short-term measures to stabilize the financial sector, revitalize the economy and ensure the solvency of Greece and the stability of the Eurozone. On December 13, 2012, the European leaders reached a deal on rules for supervising Eurozone banks which means a creation of a banking union. As long as bank failures triggered the financial crash, new rules on prudent banking are seen as vital to bolster the euro.

Nevertheless, I have to admit that there are lots of problems to be taken care of. And the first thing the countries have to do is to understand that the EU is a union of people, not just a fiscal union which means they need to feel this unity, to stick to their commitments, to be ready to cooperate and even sacrifice something for the sake of the wellbeing of the whole region. The EU is not doomed as long as they try to cooperate.

Spain: It looks like we have found a common ground. The key to the salvation of the EU is cooperation.

http://www.bbc.co.uk/news/world-europe-20695129

http://en.wikipedia.org/wiki/Business_cycle

http://rt.com/news/germany-court-bailout-ruling-930/

http://en.wikipedia.org/wiki/Eurozone

http://blogs.telegraph.co.uk/news/nilegardiner/100199825/53-percent-of-british-voters-want-to-leave-the-eu-barack-obama-and-david-cameron-should-take-note/

http://www.bbc.co.uk/news/business-21023478

http://www.bbc.co.uk/news/business-19977926

http://www.bbc.co.uk/news/world-europe-18338616

http://www.dailymail.co.uk/news/article-2136600/Greek-debt-crisis-Spate-suicides-shocked-Greece-prepares-to-polls.html#ixzz2LXKFqxt1 

http://www.telegraph.co.uk/news/worldnews/europe/greece/9186568/Austerity-suicide-Greek-pensioner-shoots-himself-in-Athens.html

http://www.reuters.com/article/2013/02/01/us-eurozone-economy-idUSBRE9100EL20130201

http://countryeconomy.com/unemployment

http://online.wsj.com/article/SB10001424052702303807404577431784097492256.html

http://revolting-europe.com/2012/06/02/indignados-in-noisy-protest-over-bankia-bailout/

http://www.eapn.eu/f/nouvelles-publications/nouvelles/nouvelles-institutions-eu/la-crise-economique-la-tacche-dhuile-des-troubles-sociaux-dans-lue

http://www.cnbc.com/id/49223665/Thousands_in_Germany_Protest_for_Wealth_Tax

http://www.telegraph.co.uk/finance/debt-crisis-live/9597581/Debt-crisis-as-it-happened-October-10-2012.html

http://www.euronews.com/2012/09/11/spain-s-catalonia-region-speeding-toward-separation/

- 5 -