In quite a short time period, Europe has gone though enormous change. In the past 40 years, politicians and technocrats (many un-elected) have attempted to manipulate the future European Union order through political ideals and economic levers.
Today, these politicians are faced with a consequent crisis that will once again lead to major constitutional change both politically and economically. Such is the outcome of an attempt to force a marriage that could not work: in this case, currency union.
As for today’s solutions, it’s a case of “damned if you do” and “damned if you don’t” re-structure the Eurozone. Leave it alone, and the illness festers and likely gets worse. Attempt a cure and the cost may be un-affordable or fatal.
The causes of the crisis are far clearer than the likely outcomes. Here are some answers.
Ireland, Portugal and Greece have had to be bailed out, but only Greece has an insoluble debt crisis largely because its economy has been (and still is) so fiscally badly run. No one believes that Greece is a worthy member of the Eurozone.
So long as Greece remains in the Eurozone, the bond markets will worry about contagion. Take Greece (and Cyprus, which is heavily locked into Greek debt) out of the Eurozone, and the fear over Italy, France, Belgium and Spain etc will fade.
The truth is, Sarkozy is likely go in 2012, and Monti is likely to stabilise Italy. The Eurozone would then gain stability and credibility, and time will be bought for an economic recovery. This extra time will also permit a behind-the-scenes recalibration of Eurozone standards, controls and monitoring.
Even if it’s at a huge cost to Greece (and its foreign debt holders), the country needs to be expelled from the Eurozone.
Yes, this means a mechanism will need to be created that could be adopted by the others PIGS ” even Italy but a political mechanism to prevent a rush to the exits should also be included. Excluding just Greece will be enough to restore bond confidence and even keep the credit rating agencies at bay.
But we’ve only got four weeks to see an announcement of Greece’s exit. Of course, they need a year to work this through, but a 50-page plan should do it. This is an emergency! After all, how many pages is the Maastricht Treaty, and how useful is it?
Greece is no longer in a position to be entitled to a Eurozone bailout. Instead, it would be best to provide a slow-drip ECB bailout as a farewell gift on the way out of the Eurozone door. Currency markets see the Eurozone as Germany, which is why the Euro remains so strong. Bond markets see the Eurozone as the PIGS. These views will converge towards the PIGS as Germany struggles to be able to financially or politically support the rest of the Eurozone unless a radical solution is found.
Stephen Archer is a director and business analyst at Spring Partnerships.
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