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Greek Debt Crisis: Can the Euro Survive?

Posted on the 15 September 2011 by Periscope @periscopepost

Greek debt crisis: Can the euro survive?

Euros. Photo credit: photoeverywhere.c...

France and Germany have moved to calm the mounting Greek debt crisis by insisting that Greece is an integral part of the eurozone. For its part, the Greek government is pushing through the toughest of austerity measures in the face of mass demonstrations. While support for Greece has temporarily calmed the financial markets, real fears persist that Greece will default and the euro will collapse.

To make matters worse for the European economy, credit ratings agency Moody’s yesterday downgraded the creditworthiness of two French banks — Societe Generale and Credit Agricole — and told a third, BNP Paribas, that it is being kept under review.

“A breakdown of the euro would cause a meltdown beyond the capacity of the authorities to contain,” warned George Soros in The New York Review of Books.

  • Germany should exit the euro. Jeremy Warner of The Daily Telegraph insisted that Europe’s economic fate largely lies in the hands of Germany: “As the great engine room of the European economy, it has the power to save or break the euro.” Warner said it is time for Germany to cease “engaging in hollow threats to expel offenders” and stop “inappropriately imposing its own monetary disciplines on others, and leave the euro itself. In the spirit of altruism, this might indeed be the best thing it could do for its fellow Europeans.” Germany’s “indecision, … threatens not just the future prosperity of Europe, including its own, but as is clear from the growing alarm of American and Chinese policymakers, that of the world economy as a whole.” Warner warned that “the longer Europe’s debt crisis persists, the more likely it is that some kind of catastrophic denouement will plunge the world back into deep recession and possibly even long-lasting depression.” “Disorderly break-up” involving the forced exit of weaker members “certainly offers no economic panacea,” said Warner, who comncluded: “So what would work? If Germany has become more the problem than the solution, then perhaps the departure of Germany itself is the least disruptive answer.”
  • Blame the French political and banking system. Simon Heffer of The Daily Mail pointed the finger of blame at French economic shortcomings: “To say the French economy has been run since World War II using smoke and mirrors would be like saying George Best enjoyed a drink. The truth is that France has lived beyond its means, for nakedly political reasons, for longer than most people alive can remember.” Heffer criticized French bank’s decision to “help others in Europe to live beyond their means as well. As Greece nears default, panic has been sown in the French banking sector for the very good reason that 45 per cent of Greek debt is owed to French banks.” Heffer insisted that “one of France’s biggest  problems is that it sees itself as one of the big boys of Europe, in the same league as Germany … But in reality, France may yet prove to be as dependent on its powerful neighbour as any of the Eurozone economic basket cases that have had to hold out their begging bowls to Berlin in the past year or two.” Heffer concluded that “France remains a nation stuck in a fantasy world of reality-avoidance mired in over-regulation, debt, waste and feather-bedded by the state” but headed for a “day of reckoning … The international financial markets are ready to pull the plug on the French style of financial mismanagement.
  • Greece is at the precipice of social instability. Jeffrey Sachs at The Financial Times questioned if pushing Greece to implement fresh austerity measures is wise: “[W]e must now understand Greece is at the precipice of social instability. Further cuts will push it over the edge – ending the adjustment programme, and intensifying the financial squeeze and the drumbeat of those trying to push Greece out of the eurozone. It is utterly naive to believe that the downward spiral would stop there. Italy, Spain, Portugal, Ireland, and even France could quite possibly be next, with the risk of bank runs pulling the entire edifice of monetary co-operation into rubble.” Greece needs working capital, backed by the European Central Bank (ECB) and the European Investment Bank, “to prevent a panic-induced implosion,” voted Sachs, who concluded, Greece, its creditors and the ECB “need to show utmost responsibility, macroeconomic judgment and maturity. Greece is doing so, and the rest of Europe must as well. If they do not, the consequences for Europe and the global economy will be dreadful. This is an extremely dangerous moment. Europe must play for the long term.”
  • Wenger: Huge financial crisis. The euro-crisis is so alarming that even (the more interlectual) football managers are weighing in with their opinions. Arsenal’s French gaffer Arsene Wenger was quoted in the The Financial Times: “I believe that Europe overall, as a unit, is going towards a massive crisis, which nobody really expects now. I am convinced that Europe will go into a huge financial crisis within the next three weeks or three months and maybe that will put everything into perspective again.” “It would be easy to dismiss a mere football manager’s thoughts on the European economy – but I fear M.Wenger may be onto something,” reacted the paper’s Gideon Rachman.

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